Creating Your Core Values

Parts of this article were written by Amelia Friedman (the COO at Hatch Apps, an automated platform that enables business leaders to build apps without coding. Amelia has been recognized as a Y Combinator Fellow, a Halcyon Fellow, and a Washingtonian Tech Titan).

When Tony Hsieh (one of the founders of Zappos), was asked what he would do differently if they could restart the company from scratch, he responded with this: “If I could go back and do Zappos all over again I would actually come up with our values from day one.”

So it is important to develop your core values as early as possible as this will help to create a lasting and positive effect on your business and its culture.

Must Do’s:

Develop your corporate values together as a team

Creating values on your own and then pushing them down to the team does not work. People cannot just be told what to find meaningful — a values system is something that you develop over the course of years, and it is not easy to change overnight.

With Indigo Financial, we all worked on the process together so we could come up with the core values that were core to us. By including everyone on our team in the process we were able to tap into values that people already held and uncover core values that we, as a business, were already living.

This helped us avoid those aspirational but essentially meaningless values (Aspirational values are those that a company needs to succeed in the future but currently lacks. A company may need to develop a new value to support a new strategy, for example, or to meet the requirements of a changing market or industry) that leaders often impose on an organization in an attempt to re-sculpt culture. Values developed with everyone involved are more likely to be unique to your business — and differentiated values go hand in hand with better performance.

Give people the chance to get involved and contribute

We met as a group and discussed our existing core values, as well as our opinions on the values systems that would be best suited for our business. We asked all team members to start thinking about questions like: What is important to us? What do our existing values mean and do we need to adjust and or add to them? What values should govern the way we interact with each other and with our clients?

Get all ideas out there and then put them in order of how we would like them 

When we sat down together, we started by writing down all of the potential values on sticky notes on the wall. This was a joint exercise with everyone discussing pros and cons etc at the same time. After about 60 minutes when we were all out of suggestions, we then started digging deeper into each value that we had noted. Was it us? Did it reflect how we wanted to treat each other and our other stakeholders? We then worked through and selected the values that resonated with us.

As a group identify a shortlist of values 

We all agreed on the core values and their wording. From there, we had an open discussion about what we valued as a company. General themes emerged from our lists, and we discovered and discussed areas where we didn’t agree. After another hour of discussion, we ultimately agreed on eight core values.

At the time, there were fourteen of us and we were fortunate to reach agreement relatively quickly. For some teams, a couple of hours won’t be enough, however, and you may need to take time to reflect and meet several times. Or this may be an activity you do at a full-day or 2 day offsite and we can facilitate that (if you like). We have run quite a few sessions for businesses and assisted them with crafting their core values as well as helping them with culture, leadership, mission, vision, strategic planning etc.

Discuss everyone’s interpretation

Understanding what your chosen values mean is critical to ensure they are implemented and are lived and breathed by the team. In fact, an employee who knows and understands their corporate values is 51 times more likely to be “fully engaged” at work.

Don McPherson, President and Co-Founder of Minnesota-based Modern Survey, noted that when people say they know and understand the organizational values of the company they work for, those people are 51 times more likely to be “Fully Engaged” than people who work at an organization without known values.

Why do organizational values mean so much to employee engagement? The fact is that values don’t drive engagement. However, the absence of values makes full engagement almost impossible. This isn’t an anomaly. Having values in your organization and having employees who live those values is a foundational part of making high levels of employee engagement possible. Without values that are lived and breathed every day, your organization can expect to have average levels of engagement at best. 

Once your company has its list of values, set aside time to discuss what each value means to you and to your teammates and how each one could and should be applied in your everyday work.

You must keep in mind that even the most well-intentioned employee may misunderstand or misapply a value. What is obvious to you now when you’re well-ingrained in the process may not be obvious to an employee that joins the team a few months later. Take the time to explain what each one truly means. This should be part of the induction into the business and this will ensure that everyone is aware and on the same page.

For this discussion, focus on addressing questions like:

• What does this value mean to us?
• What does it look like in action?
• How might it be misinterpreted?
• How will we evaluate adherence to it?
• How will it change our relationships or our interactions?

Try to synthesize your shared understanding into clear, direct explanations of how you will see, experience, and live those values in the workplace. Take the value of “respect” as an example. What does that look like at your company? How will your employees demonstrate their respect? Who will they be respectful of? How will that change their everyday behavior?

During this process, have a one of your team taking notes, and then send them off to nail down the precise wording and interpretations. Word choice is important since it will affect how the values are read and interpreted. Circulate an early draft among your team and then meet to discuss and finalize a few days later.

You may need to go through this process a few times — draft, meet, discuss, modify, redraft, and repeat — before landing on an interpretation that everyone can stand behind. That’s OK. The more thoughtful and intentional this process, even if it’s slow, the better.

Integrate your values

Posting your values in your break room isn’t nearly enough. It’s critical to identify any changes you’ll make or practices you’ll adopt to support their integration.

Amelia says: “In our case, our “maintain a growth mindset” value led to the addition of independent learning and professional development goals into our quarterly review process. Now everyone is asked, “What will you learn?” at the beginning of the quarter, and then held accountable for those commitments three months later. Part of our interpretation of our “results-oriented” value was that “we limit meetings to those that create value,” so all team members were immediately asked to revisit their schedule, and to shorten or eliminate meetings where possible”.

Bring together your team again to draft a plan for integrating your values. Go one by one to determine how they might become a part of your culture, or how you might build a rewards system that better aligns with them.

Look for ways that you can integrate values into hiring practices, induction, performance bonuses, and promotion opportunities etc. Be sure to highlight employees who are living examples of the values.

Also allow your values to evolve over time and reinforce them over time. Once a year, you should get the team together to discuss your values and determine whether your interpretations (or then values themselves) might need revisiting, or how you might even better integrate them in the coming year.

Thoughtful, well-implemented values can serve as the foundation for a positive, high-performance culture. It’s worth taking the time to get everyone on the same page by establishing corporate values, developing a mutual understanding of them, and then making them an integral part of your everyday work experience — and this is all much easier to accomplish when your team is still small.

Contact us to find out more and how we can help you develop your core values.

A recent case before the Administrative Appeals Tribunal (AAT) highlights the importance of ensuring that the evidence supports the tax position you are taking.

The case involves heritage farmland originally purchased for $1.6m that sold 7 years later for $4.25m and the GST debt that the ATO is now pursuing on the sale.

In 2013, the taxpayer purchased Sutton Farms in Western Australia – 1.47 hectares consisting of an uninhabitable homestead, large barn and quarters.

Over the course of 7 years, the taxpayer rezoned the property, obtaining conditional subdivision approval to subdivide the property into four lots with plans for a further subdivision into approximately 15 lots, as well as undertaking sewerage, water and electrical works. The work was supported by a $1m loan from a bank and a further $1.5m from his brother-in-law.

While the property was never used for this purpose, the taxpayer’s stated intention was to use the property as their home, gift the subdivided lots to his daughter and son for use as their own respective residences, and use the last subdivided lot as a memorial dedicated to another child who had passed away.

Without being subdivided, the property was eventually sold at a profit as a single lot in 2020 for $4.25m.

When the ATO audited the transaction and issued an assessment notice for GST on the sale transaction, the taxpayer objected. The taxpayer’s argument was that Sutton Farms was intended to be used as a family home and the subdivision application had no commercial purpose. Therefore, GST should not apply as the sale was not made in the course of an enterprise.

However, there were a number of factors and inconsistencies working against the taxpayer’s argument:

• Local media articles that outlined the taxpayer’s plan to commercialise the property, “with the plans to lease it out as a restaurant, wine bar or coffee house, turn the barn into an art studio and add 8 – 10 finger jetties in the canal adjacent.”
• Statements made to the ATO during the objection stage of the dispute indicating that the taxpayer intended to subdivide the property to sell some of these lots to repay loans owed to the taxpayer’s brother-in-law; and
• GST credits were claimed on the original development costs. The taxpayer’s accountant also made representations to the ATO stating that the GST credits were claimed because the intended subdivision and sale of the several lots within the property amounted to an enterprise.

The problem for the taxpayer is that although he did not develop the property in the way he originally intended and ended up selling the property as one lot, through the ownership period he acted as if the project was a commercial venture with a stated commercial outcome.

The importance of objective evidence

Determining the tax treatment of a property transaction can sometimes be a difficult exercise and there are a number of factors that need to be considered. This will often include the intention or purpose of the taxpayer when acquiring a property. However, merely stating your intention isn’t enough, it needs to be supported by objective evidence. This might include loan terms, correspondence with advisers and real estate agents, the way expenses have been accounted for, or the conversation you have with a journalist.

Australians love property and the lure of a 15% preferential tax rate on income during the accumulation phase, and potentially no tax during retirement, is a strong incentive for many SMSF trustees to dream of large returns from property development. We look at the pros, cons, and problems that often occur.

An SMSF can invest in property development if trustees ensure the investment complies with the rules. And, there are a lot of rules. A key is the sole purpose test. Trustees need to ensure the fund is maintained to provide benefits for retirement, ill health or death. Breaches of this fundamental tenet are serious and include the loss of the fund’s concessional tax treatment and civil and criminal penalties.

By its nature property development is high risk and fund trustees need to ensure that the SMSF is not simply a handy cash-cow for a pipe dream, particularly when the developers are related parties.

There are multiple ways an SMSF can invest in property development if the investment strategy of the fund allows:

• Directly developing property
• An ungeared unit trust or company (the parties can be related)
• Investment in an unrelated entity
• A joint venture
• Directly developing property from fund
• assets

An SMSF can purchase land from an unrelated party and develop the property in its own right. Common issues that often arise include:

Acquiring the land from a related party – An SMSF cannot purchase land from a related party (unless it is business real property used wholly and exclusively in a business). This means that the lovely block of land inherited by one of the members, or owned by a family trust, that is perfect for development cannot be purchased by the SMSF.

An SMSF cannot borrow to develop property – An SMSF can borrow money to purchase land using a limited recourse borrowing arrangement but it cannot use a loan to improve the asset. That is, borrowings cannot be used to develop the land. And, where the SMSF has borrowed to purchase land, it cannot change the nature of that asset until the loan has been repaid. That is, no development.

Who will develop the property? – Problems often occur when the property developers are related to the fund members. Whilst it is possible to engage a related party builder to undertake the work, there are strict rules that mean that the work and materials must be acquired at market value. That is, there is no advantage from “mates rates”. If you are using a related party builder, ensure that the paperwork is pristine, any transactions are at market value, and all interactions are documented.

GST might apply – Goods and services tax might apply to the development and the sale of any developed property. If the ATO considers that an SMSF is in the business of developing property or is undertaking a one-off development in a commercial manner then GST could potentially apply.

If your SMSF is not undertaking a property development project in its own right, there are a few ways for an SMSF to invest in property development projects:

Related ungeared trust or company

An ungeared company or trust is often used (under SIS Regulation, section 13.22C) when related parties want to invest in a property development together. The SMSF can invest in a company or trust that is undertaking a property development as long as the company or trust:

• Does not lease to a related party (unless business real property)
• Does not borrow money or have borrowings (must be ungeared)
• Does not conduct a business
• Conducts any dealings at arm’s length
• And, the assets of the unit trust or company:
  • Do not include an interest in another entity (i.e., cannot have shares in a company)
  • Do not have a charge over them (i.e., mortgage over any asset)
  • Are not purchased from a related party (or was ever an asset of a related party) unless the asset is business real property acquired at market rates.

See section 13.22C for full details.

Profits from the company or trust are then distributed to the SMSF according to its share.

Using the provisions of 13.22C means that the SMSF can invest in property development with a related party without the development being considered an in-house asset. However, if the criteria are not met (at any point), the in-house asset rules apply, and the SMSF might have to sell the units in the trust or shares in the company to return to the maximum 5% in-house asset limit. Generally, this means the sale of the underlying property or a significant restructure. Problems arise with 13.22C arrangements where the trust or company:

• Needs more money to complete the development and borrows money, or issues more units and sells them (is in business)
• Accepts a loan from a member of the SMSF
• Overdrafts (may be considered loans and breach 13.22C)
• Uses a related party builder who either under charges for the work completed or overcharges and strips the profits that should have been returned to the SMSF.

Warning on conducting a business

One of the criteria for the exemption in 13.22C to apply is that the trust or company cannot be conducting a business. This requirement may prevent short-term property developments that are built and sold for profit. Typically, 13.22C arrangements are used for long term investments where the development enables the creation of an asset that is then leased by the trust or company. This could be commercial premises leased to a related or unrelated party (e.g., premises for a child care centre or manufacturing), or residential premises leased to unrelated parties (e.g., townhouses or small developments).

Unrelated property developments

Investing in unrelated entities for a property development is attractive as there is no limit to how much of the fund’s assets can be invested (subject to the investment strategy and trust deed allowing the investment), and unlike ungeared entities, the entity is able to borrow money/place charge over the assets. Where related parties are investing in the same entity, there are rules governing the percentage of ownership the SMSF and their related parties can hold. To meet the definition of unrelated entity for in-house asset purposes, the SMSF and their related parties must not own more than 50% of the units available. This is because the SMSF cannot control or hold sufficient influence over the entity and remain an unrelated entity. If the ATO considers the entity is related to the SMSF, then it would become a related party and the investment an in-house asset.

Joint venture arrangements

An SMSF can potentially invest in a joint venture (JV) property development, but the criteria are necessarily strict and there are a range of issues that need to be considered carefully. One of the issues that needs to be considered up-front is determining the substance of the arrangement between the parties, because the term JV can be used to describe a variety of arrangements. The ATO confirms that care must be taken to ensure that arrangements with related parties are true JVs.

Under a JV, the SMSF invests in and has a share of the property being developed (not the entity undertaking the development). Each party bears the costs (time and/or money) of the JV and receives this same proportionate contribution from the returns. If the arrangement is not structured properly then the SMSF’s stake in the JV could be treated as an investment in or loan to a related party and be treated as an in-house asset. For example, this could be the case if the SMSF only provides a capital outlay for the arrangement and has no rights other than a contractual right to a return on the final investment.

It is also necessary to consider whether the arrangement between the parties could be treated as a partnership for tax, GST and legal purposes. For example, this could be the case if the arrangement involves the sharing of income, sale proceeds or profits, rather than sharing the output from the project.

It’s essential to get advice well in advance – tax, legal and financial – before pursuing a JV.

Is your SMSF the best vehicle for property development?

Trustees need to carefully consider any investment decisions and have a sound rationale for the investment. Any advice on a property development needs to be from a licenced financial adviser (property specialist). A lawyer should be used for any contracts or agreements between parties. And, compliance assistance from a qualified accountant.

The personal income tax cuts legislated to commence on 1 July 2024 will be realigned and redistributed under a proposal released by the Federal Government on 25 January 2024.

After much speculation, the Prime Minister announced that the Government will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024. Relative to the current Stage 3 plan, the proposed redesign will broaden the benefits of the tax cut by focusing on individuals with taxable income below $150,000.

With the legislation passing the Senate on 27 February, an additional 2.9 million Australian taxpayers are estimated to take home more in their pay packet from 1 July.

It’s not how Stage 3 of the 5 year plan to restructure the personal income tax system was supposed to work, but a sharp escalation in the cost of living has reshaped community sentiment. As the Prime Minister said, “we are focused on the here and now” and by default, not on long term structural change.

The redesign will increase Government revenues from personal income tax by an estimated $28 billion to 2034-35 as bracket creep takes its toll.

What will change?

The revised tax cuts redistribute the reforms to benefit lower income households that have been disproportionately impacted by cost of living pressures.

Under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example:

• An individual with taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan (but they are likely to have benefited from the tax cuts at Stage 1 and Stage 2).
• An individual with taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.

There is additional relief for low-income earners with the Medicare Levy low-income threshold increasing by 7.1% in line with inflation. It is expected that an individual will not start paying the Medicare Levy until their income reaches $26,000 and will not pay the full 2% until $32,500 (for singles).

While the proposed redesign is intended to be broadly revenue neutral compared with the existing budgeted Stage 3 plan, it will cost around $1bn more over the next four years before bracket creep starts to diminish the gains.

How did we get here?

First announced in the 2018-19 Federal Budget, the personal income tax plan was designed to address the very real issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time. The three point plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours (i.e., New Zealand’s top marginal tax rate is 39% applying to incomes above $180,000).

The three point plan introduced incremental changes from 1 July 2018 and 1 July 2020, with stage 3 legislated to take effect from 1 July 2024.

What now?

If you have any concerns about the impact of the proposed changes, please call us to discuss.

For tax planning purposes, for those with taxable income of $150,000 or more, the redesigned Stage 3 tax cuts offer less planning opportunity than the current plan. But, any change in the tax rates is an opportunity to review and reset to ensure you are taking advantage of the opportunities available, and not paying more than you need.

Due to demand we are working on locking in a business camp event for February 2025. This is an early heads up.

We will be offering Super Early Bird Rates for registering early, look out for them shortly

I harp on this constantly but it is a proven fact that businesses that attend the GBC regularly are performing better than their industry counterparts.

The businesses that attend the GBC regularly: are looking after their customers better, have more repeat business from their customers, have greater gross margins or revenue per hour worked, communicate with their customers and team more frequently and clearly and in turn have greater profits.

Further:

• Businesses with a high customer service rating have 11 times higher net profit return on sales than those with a low customer service rating
• These businesses charge 10% more for their products
• They grow twice as fast

Now that is what business is about: Wowing your customers so they want to work with you more.

If you want to be in this elite group please contact us to find out more information. We will be providing material as we move forward as well.

For all of the businesses that have contacted us to find out when the next event will be held I can truly say is well done. You have taken the first step. Also, for those of you that are keen to come back for your 2^nd, 3^rd or 6^th time etc you know that repetition increases results. Well done once again.

Look out for our super early bird pricing, coming soon.

Find out why thousands of people have attended our business camps and why they keep coming back. Please listen to https://globalbusinesscamps.com.au/event/testimonials/ for some video testimonials.

 What does the Three Day Program focus on?

• The 6 Secrets™ of any successful business. This simple yet powerful concept will give you a structured starting point to start the journey improving the performance of your business.
• The 5 Key Business Building Strategies™.
• You will also learn how to apply systems that will improve your business.
• How you can profit by working ON rather than IN your business.
• You will discover how to calculate the real value of your business and what you can do to increase that value.
• You will learn how to increase the profitability of your business but NOT at the expense of your quality of life.
• Discover how it is the “Little Things” that have a profound effect.
• Benefit from the experiences of other business people.

Our Awesome Guarantee

“We guarantee that when you have completed the program, you will not only have the tools to re-engineer your business, but the confidence and vision to implement the changes necessary”.

Secure your seats NOW

Secure your seats at the event now and save up to $1,100 per person. Pre release early bird rate is $2,200 for a limited time. Avoid the price rise and lock in your seats and your teams seats.

Please note you do not have to pay the full amount now. It is all about locking in your seat(s).

Call us or e-mail us so we can book your place.

As Bob Dylan said “The times they are a changing”. To win in business now we have to be more creative and proactive, we have to be more relevant.

The secrets to doing that are available to everyone in business. You just need to act.

This is why you Must be There…….

Contact us to find out more.

Legislation enabling an extra 15% tax on earnings on super balances above $3m is before Parliament.

While not a concern for the average worker, if enacted, those with significant property or other illiquid assets in their superannuation fund are most at risk, for example farmers and business operators who own their business property in their self managed superannuation fund (SMSF).

The issue is how the tax is calculated.

The tax captures the growth in the balance of a member’s superannuation over the financial year (allowing for contributions and withdrawals). It captures both:

• Realised gains from the sale of assets, and
• Unrealised gains triggered by an increase in the value of superannuation assets. For example, if the value of a property increases.

If the member’s total super balance has decreased – the loss can be offset against future years. The ATO will calculate the tax each year. Members with balances in excess of $3 million will be tested for the first time on 30 June 2026, with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

If you are likely to be impacted by the impending new tax, it is important to speak to us and your financial adviser.

While keeping assets within superannuation will remain the best option for many from a tax and planning perspective, it’s important to ensure that you’re in the best possible position.

The key influences of 2024

Uncertainty has reigned over the last few years, but can we expect more consistency as we head into 2024? We explore some of the key issues and influences.

Inflation and labour supply

RBA Governor Michelle Bullock stated, “Inflation is past its peak and heading in the right direction, but it is likely to return to target a bit more slowly than we previously thought.” While there have been encouraging signs, uncertainty remains.

Domestically, inflation is persistent, growth has slowed but the labour market remains tight. And, the Australian economy remains at risk with uncertainty over the Chinese economy and ongoing international conflicts.

At this stage, the RBA have not ruled out further interest rate increases.

The unemployment rate remains at 3.7% and the labour market tight. Wages grew 1.3% for the September 2023 quarter and 4.0% over the year, pushing wages to a 14 year high. High-skilled workers are particularly difficult to source, and we appear to have reached a point now where employers are unwilling to pay inflated salaries to acquire those willing to move.

Income tax cuts and the end of some concessions

Income Tax Cuts:

From 1 July 2024, the stage 3 tax cuts that radically simplify the personal income tax brackets come into effect. The tax cuts collapse the 32.5% and 37% tax brackets into a single 30% rate for those earning between $45,001 and $200,000 – this is assuming the May Federal Budget does not postpone or scrap them!

Superannuation Guarantee Rate:

The superannuation guarantee rate will rise again on 1 July 2024 to 11.5%.

Small Business Concessions:

For small and medium businesses with group turnover of less than $50m, a series of concessions are set to end or reduce back to conventional levels:

• The Skills and Training Boost ends on 30 June 2024. The boost provides a bonus deduction equal to 20% of eligible expenditure for external training provided to your workers for costs incurred between 29 March 2022 and 30 June 2024.
• The Small Business Energy Incentive is scheduled to end on 30 June 2024, although legislation to introduce this concession still hasn’t passed through Parliament. The incentive is intended to provide an additional 20% deduction on the cost of eligible depreciating assets that support electrification and more efficient use of energy.

Instant Asset Write-off:

The instant asset write-off for businesses with group turnover of less than $10m is due to reduce back to $1,000 from 1 July 2024. The cost threshold is meant to be $20,000 for the 2024 financial year, but legislation relating to this measure hasn’t passed through Parliament yet.

Worker rights and rewards

There have been a myriad of changes and enhancements to workplace laws across 2023 and employers can expect greater scrutiny in 2024:

• A 5.75% increase in the minimum wage to $23.23 per hour from 1 July 2023.
• New rules and a 2 year limit to some fixed term employment contracts (no renewing).
• A landmark case that defined how to determine whether a worker is a contractor or employee. The ATO has followed through with new rulings to ensure employers are paying the correct entitlements. It’s essential that employers have assessed contractors to ensure that they are classified correctly.
• Greater flexibility for unpaid parental leave.

 1. Goal setting and success go hand in hand

A very small percentage of the adult population sets goals. Further, of those who do, only a handful actually write them down. Various percentages are thrown around but the number of people who actually have written goals is probably less than 5%. This is a very scary thought. Yet this is something that we can control yet we avoid to control.

The main cause why people Fail To Implement is that they Failure To Set Goals.  A study that was conducted revealed:

• People who had written goals were 50% more likely to achieve them than those without written goals.
• Even more importantly, those who had written goals accompanied by written action commitments AND who submitted a weekly progress report to a friend, mentor or coach were 78% more likely to achieve their goals than those people who were simply asked to think about what they would like to achieve.

When you have a goal you have something to aim for, something that will challenge you, which is a primary source of personal motivation. A goal gives you an objective criterion for measuring your success… indeed, a case can be made that in the absence of a written goal accompanied by an action plan and an accountability process, success will be extraordinarily difficult to realise. As we always say during our business camps if you aim at nothing you will hit it with amazing accuracy every time. Therefore we must set goals and work out how we are going to achieve those goals.

We can help you establish and document your goals and then work with you well into the future so you can achieve them. For more information on how to set goals that are achieved please call us.

2. The Business Planning Framework™

We have put together the business planning framework as this is what we believe needs to be followed to ensure that your business is running at it’s optimum level. Most people in business do not tackle the things above and therefore the business does not reach it’s full potential. Every business owner must ensure that the foundation of the business needs to be solid. To do that you need to have a vision, mission and core values. It is very important that all stakeholders (owners, team, customers, suppliers) know where the business is going and why it is going there, what the business stands for and what is core to the business and therefore not negotiable.

From there you must move forward and review your structure and then your strategy. You can only really look at the structure and strategy once you have your foundation under control. As part of this process you would really delve into your Strengths, Weaknesses, Opportunities and Threats.

From there we need to ensure that the business has all of the pillars under control. All of these areas are important and must be focussed on. Most people do not focus on these and therefore the business does not reach it’s full potential.

The key performance indicators (KPI’s) are the first thing that can be seen and that is why we have them as the roof of the structure. If the roof is falling apart or there are issues you will notice it first. Having KPI’s and tracking them is very important. Every business must be on the lookout for indicators that are not as planned. Sometime s they could be better than planned and sometimes worse. But you will not know unless you have indicators set up.

This is a very serious and detailed area of any business and we would be happy to work through the business planning framework™ with you. For more information on the BPF™ please call us.

3. 5 Key things you should do to help improve your cash flow

Small business owners are not planning ahead enough. Small business is getting riskier for many owners, with tens of thousands of SMEs now more likely to experience financial stress in the coming year as per research conducted.

Credit rating agency Dun & Bradstreet says one in 10 businesses with fewer than 20 employees now face a higher risk of failure than a year ago. It’s no wonder when so many SMEs are reportedly struggling with reduced cash flow and more businesses are failing to pay their bills on time.

When businesses go under, it’s generally not because they’re not making an accounting profit, but because they simply don’t have enough cash to pay their bills. In fact, there are plenty of profitable businesses that have ended up in administration because of cash flow issues.

There are ways to improve your SME’s cash flow.

1. Chase Up Payments

The first step is to chase up those who owe you money. A cash crunch could be the result of just a few late-paying clients so it’s imperative to keep track of who’s running late with their payments.

It could be a mail-out or a simple phone call reminder to let them know the payment is due. You just need to be active.

2. Reduce Payment Terms

Consider offering just 30 days credit terms instead of the longer 45 day plus terms, communicate with customers and offer discounts for those that pay straight away.

3. Review Financial Products

Review your financial products – transaction accounts, credit cards, loans – and if they aren’t working for your business talk to your financial institution and make sure you shop around for a better deal.

4. Ask For Help

Don’t be afraid to ask for help – ask us how we can assist you to improve your position. One of the keys to running a better business is having profit and loss and cash flow budgets prepared annually. That way you can see ahead what your profit and cash flow will look like. This then gives you an opportunity to act. If you know ahead of time that you are going to have a cash flow problem then you can do something about it. Most businesses do not know they will have a problem until they actually have the problem. Typically, by then it is too late to do anything about it.

Another great strategy is to monitor and compare the budgets to actual data. That way you can see how you went compared to the budgets.

Another strategy is to conduct ‘what if analysis’.  What we do there is we consider what impact there would be on your business if:

• Sales decreased by 10%
• Accounts receivable are collected in 65 days instead of 40 days
• And so forth

It is a great way to see what would happen to your business if certain things happen.

Speak to us so we can help you get all of the above in place.

Do you know what the ‘break even’ figure is for various operations being conducted in your business?

‘Break even’ sales are the level of sales necessary to cover all fixed (does not vary relative to production) and variable expenses (relate to production/sales) within your business.

Knowing your breakeven point is critical for business owners and managers. The break even point is the minimum level of sales you need to cover your businesses expenses. This is vital when you are trying to determine how to price your products or services. By knowing this number this allows you to make an informed decision when setting your prices to ensure you generate enough revenue to cover all of your costs and also for the business to make a profit.

Critical point about costs – One thing most people miss from our experience is to ensure that there is a market salary included in the costs to run your business. Therefore, make sure you include this. You are a valuable resource and your business wouldn’t function properly without you.

Further by knowing your breakeven point this helps you make an informed decision if you are looking to expand your business. Whether you are thinking about hiring more people (employees), investing in new equipment, expanding your product or services lines, getting into bigger premises etc. Understanding your breakeven point can help determine how much additional revenue you would need to generate to cover all of the new expenses whilst also still making a profit.

How do you Calculate the Break Even Point?

Remember the Break Even Point – gives the point of no profit or no loss.

To calculate your business’ ‘break even’, you need to know the gross profit percentage for the individual operations within the business for which you’re trying to determine the ‘break even’ amount.

For example:

Fixed cost – $235,000        Variable cost – $622,000

This will be a total cost, at that level of operations of $857,000.

If the gross profit being achieved by that operation or the overall business was 47%, the calculation would then be:

Fixed Cost + Variable Cost

Gross Profit Percentage

$235,000 + $622,000        = $857,000           $857,000              x              100         = $1,823,404                                                                                                   47%                                      1

Therefore, at this level of operations, the ‘break even’ is $1,823,404.

To prove the calculation:

Sales $1,823,404 x 47% =                       $857,000

If you would like our assistance in calculating ‘break even’ figures for your various operations or your overall business, please do not hesitate to contact us.

Here are some great tips and things to consider as we roll into 2024.

Team Members

• Have you reviewed your Human Resources Manual? Are any updates required?
• Do you normally conduct team member appraisals at this time of year? Have these been done?
• Have you conducted a survey of team members on their suggestions to improve services to your customers?
• Is there a need to discuss productivity improvements with team members?
• Are you receiving regular input from your team members on operational issues?
• Are regular team member meetings held?
• Have you encouraged the formation of teams within the business? The team could consider ways and means to improve business productivity and performance.
• Have you empowered team members to exceed customers’ expectations?
• Are there any changes necessary for the team training program in 2024/25?
• Do you conduct exit interviews with any team member who resigns?

Gross Margins

• Are you happy with the key margins being achieved in your business?
• Gross Profit Percentage?
• Labour to Turnover Percentage?
• Net Profit to Turnover Percentage?

Debtors

• Are you receiving a monthly debtors’ aged analysis within 2 working days of the end of each month?
• Are you calculating debtors’ days outstanding each month? How does the days outstanding compare to your budgeted figure?
• Are you going to change any of your policies or procedures for debtors in 2024/25?

Products/Services

• Are any new products or services proposed to be introduced? Have these products or services been subjected to intensive review by the team?
• Have any focus group reviews been conducted?

Bank

• Are there any concerns in your relationship with your bank?
• Do you need to make any operational changes in 2024/25 to enable the business to comply with your bank’s lending requirements?

Insurance

• Have you completed a detailed review of your insurance requirements for 2024/25?

Suppliers

• Have you thought about approaching some of your suppliers for assistance in 2024/25? Assistance could include:
• price reduction;
• longer payment terms;
• promotional assistance;
• joint submission to major prospects; and
• assistance in marketing campaign to compete with competitors.

Wastage, Theft, Pilferage

• Have you quantified the cost to the business from wastage, theft or pilferage?
• Have the team members been informed of these costs?
• Have you developed policies for 2024/25 to try to reduce these costs?

Cashflow Management

• Have you factored in the increased interest rates in your budgeting? Should you be considering trying to lock in a long-term fixed interest rate at this stage?
• Have you reviewed your debtors’ days outstanding? Can strategies be introduced in an attempt to reduce debtors’ days outstanding by the utilisation of a debtors’ reduction program?
• Have you considered the stock turn being achieved from individual products, sections or departments, within your business?
• Are the stock turn rates acceptable? If not, what can be done to improve the stock turn rate (eg. relocation of the stock to a better display area, price adjustment, ceasing to handle this type of stock, better promotion)?
• Does your investment in work in progress exceed 30 days of WIP? Does this mean that progress claims are not being raised regularly?
• Are some jobs not being deliberately finished, so there is a ‘delayed management review’ on the performance of a particular job?

Succession Planning

• Have you developed a succession strategy for your business?
• Have you prepared a summary of the succession strategies that require implementation in 2024/25?

Business Plan

• Have you reviewed your business plan and determined any changes to be implemented in 2024/25?
• If you haven’t prepared a business plan, should this be one of the priorities for 2024/25?

Now is an ideal time to talk to us about business development strategies for your business, particularly relating to:

• a business health check
• business evaluation workshop
• cashflow management, including:
  • debtors
  • stock
  • work in progress reviews
• business plan development for 2024/25
• budgets & cashflow forecasts for 2024/25
• leadership review
• succession planning
• buying a business – if you’re contemplating expanding your business operations
• selling a business – if you’re planning on selling your business
• bank’s/lender’s review
• gross profit analysis review
• break even analysis
• Tracking of key ratios
• sales targets and calculations of “what ifs”
• surviving in difficult times
• catching up regularly (monthly or quarterly) to review the business and keep it going in the right direction

We can help you build a business that works without you. Our Business Advisory Work is suited to all small to medium sized businesses that would like to run a better business. From analyzing where you are currently to assisting to plan and implement your end goals.