Elevate CA Blog

 

The phrase “new normal” has been circulating for a while now to describe the current state of affairs featuring a tougher banking environment and retrenchment of debt laden businesses and households.  The new normal envisages a future where the economy is powered by exports and business investment rather than by consumption, easy credit and rising asset prices.

Consumers are adapting to the new normal en masse by delaying gratification and repaying debt.  We are collectively holding off on buying big ticket items – and we are adopting the collective attitude that if something isn’t on sale and seriously discounted, then we won’t buy it until the vendor is willing to just about give it away.  We want to see some blood on the floor before we commit.

Tough for business owners who are hanging on in anticipation of a return to the “old normal”!

So how does your business thrive in the new normal environment?   Here are our top seven tips:

 

Continue to be lean.  Assume that boom times are not around the corner, so lock in those bootstrapping attitudes that have served you well through the past couple of years. Don’t relax vigilance with keeping overheads under strict control. 

Monitor your margins closely – for the full range of your goods and services.  There is still potential for costs to increase – and your ability to pass these on may be limited.  The new normal is not an environment where you can thrive on the average of profitable and unprofitable activities.

Use cash surpluses to pay down debts.  The new normal is no time for excessive leverage.

Take good care of your customers – and focus on adding value for them.  Those businesses that are able to provide significant value with superior service will be the ones that gain market share and thrive in the new normal.

Look for growth opportunity – and if you do expand, continue to bootstrap and try to keep your use of debt to a minimum.

More than ever – remember, cash is king. Focus on your debtors and cash management every day – and try to keep enough cash on hand – or enough headroom on your banking facility – to cover at least 30 days of expenses.  Preferably more.  

Deal with employee issues with an approach that is seen to make sense.  Despite relatively high unemployment, there is still a skills shortage – and you’re probably operating with a pared down team.  Make sure your crew appreciates and buys into the direction your business must take to thrive in the new normal – and make sure that in return you are adding value for your team on the way through.

 

The old normal is unlikely to return any time soon – if at all.  Those businesses that have survived the ressession in reasonable shape – and who focus on the seven points above will likely stay ahead of their industry averages, gain market share and thrive in the new normal environment.

 

 

 

A big thank you to the 40 or so business owners and managers in the construction trades who attended the “Building a Better Business in the Construction Trades” conference hosted by Webb Ross >>> on the past two Thursdays.  David Grindle – partner at Webb Ross – put this conference together, and his plan is to make this an annual event.  Great effort, David.

My contribution to the event was to discuss the behavious and habits that separate the excellent operators in the construction trades from the average operators.  We work closely with quite a number of clients in the construction trades, so we’re well placed to comment on this.

Here are our top seven behaviours and habits (in no particular order) that separate the excellent from the ordinary in the construction trades:

 

1.  Excellent operators manage cash closely

Resolve disputes quickly – especially those that are holding up payment.

Get paid retentions – don’t let those few minor tasks like painting manholes etc drag on and slow up receipt of retentions.

Make sure you issue valid payment claims under the Construction Contracts Act.

Don’t use IRD as a bank. Its easy to ease cashflow by paying GST and provisional tax late, but it’s expensive money.

Keep your bank in the loop. If you have banking covenants, honour them.

Get a variation agreed if the scope of a job creeps outside what has been contracted for.

Keep a cash reserve.  Preferably enough to cover 30 days of overheads.

 

2.  Excellent operators monitor profits closely

Back Cost most if not all jobs on completion.  Did they go as planned.  If not, why not?

Set KPIs – and monitor them monthly.

Set and monitor budgets.

Prepare monthly financial statements promptly, compare them with budget and understand variances.

 

3.  Excellent operators always use contracts

Although the Construction Contracts Act only requires written contracts for jobs over $20,000, we recommend written contracts for all jobs.

Know your payment milestones and manage the job around them.

Manage variations – and communicate these immediately.

Get the best from the claims process – follow the process laid out in the Construction Contracts Act to the letter.

Get paid retentions in a timely manner.

 

4.  Excellent operators are compliant

Comply with the legislation that applies specifically to your industry such as the Construction Contracts Act.

Keep proper accounting records.

Always use employment agreements for employees.

Pay people through the system – not in folding.

Deduct withholding tax from subcontractors where required.

File GST, PAYE and tax returns on time.

Comply with health and safety best practice.

 

5.  Excellent operators manage risk

Don’t rob the next job to pay for the last job as this creates huge financial risk if work slows down or stops.

Have proper insurance.

Get basic structuring right.  Operate through a limited liability company, always sign contracts as director rather than as an individual – and don’t accumulate valuable assets in your trading company.

 

6.  Excellent operators are organised

The construction trades require careful organisation – and the lack of it is a big predictor of failure!

 

7.  Excellent operators manage their brand

Appearance, apparel, vehicles, stationery and telephone manner are all important.  Be seen to be professional.

Know where your referrals come from and nurture referrers.

Network and get involved in the industry. 

 

It is my belief that the more ticks you can put beside the items listed above, the better your chances of excelling in the construction industry.  As you will know if you are interested enough to have read this far, the bar is much higher in this industry than it was a few years ago – and the ways of operating that were once acceptable just don’t cut it any more.

 

 

The upcoming increase in GST rate means some action for most businesses on the software front.  Typically if you’re using the latest version of your software, any upgrade to manage the change in GST will be reasonably painless.  But where you’re using an older version, you may find yourself needing to upgrade to the latest version before any patches or updates for the GST changes will work.

Here is a summary of what will be required for users of the more common software packages used by owner-managed Kiwi businesses.

 

MYOB

If you’re not using the most recent version of MYOB, you’ll need to upgrade.  Dig out your software serial number and key it into the box on the MYOB website >>> to check whether you need to upgrade.  MYOB will soon release a patch to registered users of the latest version which will create a new GST rate code and update debtors, creditors and recurring transactions.  It will also generate a transitional GST return and a new 101 GST return report.

 

Xero

As Xero is delivered as a service on a subscription basis and accessed online, there are no upgrades required at your end.  You have already paid for any upgrades at the Xero end as part of your monthly subscription.  Look out for the usual notification box when you log in explaining any changes Xero may make to the interface in response to the GST changes.

 

MoneyWorks

MoneyWorks already has a facility allowing a change in the GST rate from a particular date, so no upgrade is necessary – even if you are using a very old version of the software.  Users will need to change the GST rate in the MoneyWorks Tax Table in their software – and to set the appropriate date of 1 October and the software will automatically take effect on the date.  Step by step instructions are available on the Cognito Software website here >>>.

 

BankLink

BankLink also already allows for a change in the GST rate in “Other Functions”, “GST Setup”.  You can enter the new GST rate now along with the date (1 October) for the new rate to take effect.  Also expect a free patch to amend the 101 GST return report.  BankLink are running free 30 minute webinars to help users through this if they are having difficulties.  Upcoming webinar times are on their website here >>>.

 

QuickBooks

If you haven’t already done so, you’ll need to upgrade to the latest version (2010/11) or QuickBooks Online.  The distributors, Quicken, will release a patch on 24 September for these two versions only.  The patch will automatically change the “S” tax item to 15%.  You will be able to select the appropriate GST code after 1 October, while historical data will remain unchanged.  Instructions will be posted on the Quickbooks website here >>>  on 24 September – and they will detail the checks and action you will need to take.  Disks will also be made available on 1 October. 

If you’re running the 2008 / 09 version, it appears possible to bypass the 2010/11 upgrade and the upcoming patch by manually changing the GST rate – although we don’t recommend it.  If you want to go down that path, please do not manually change the S rate from 12.5% to 15%.  Rather create a new tax code and tax item for GST for the 15% rate which will report through to the Tax reports and the GST 101 report.

 

CashManager

Users will need to upgrade to CashManager 2010 if you haven’t already done so.  This latest version will allow the new GST rate to be entered and utilised throughout the package.  Instructions on how to change the GST rate in CashManager 2010 are on the Accomplish website here >>>.

 

Although some earlier versions of these packages allow you to manually change the GST rate in the setup menus – and it may seem tempting to stick with your existing version of the software if it is only couple of years old, we don’t recommend this.  The time, energy and cost of unravelling errors later will likely far exceed the cost of upgrading now to stay with the latest fully supported version of your software.

If you have any concerns or problems, just call us.

 

 

“Advisory boards – What are they and do you need one?”  That was the question posed to the panel at yesterday’s Business Owners Forum – and here are some of the points emerging from yesterday’s event:

An advisory board is a forum to challenge, stretch, support and test your ideas with people you trust.  These could be your advisors – or people from your network.  Bruce Sheppard put it bluntly when he said:  “Boards that are overly focussed on ticking the boxes are worse than useless.”

 

An advisory board is distinct from a real board of directors in that directors have statutory obligations and potentially liabilities under the Companies Act and other legislation.  An advisory board should be a discussion forum rather than a decision making forum – or they run the risk of being deemed to be directors under the Companies Act.

 

In a more corporate environment, the roles of owner, director and manager are quite separate.  The directors form strategies that the owners are prepared to fund – and the managers are prepared to implement. 

But in owner managed businesses, there are often murky boundaries between these roles.  An advisory board can help the business owners wear these different hats.

Business owners are often consumed with doing the operational things that are urgent – and advisory boards can help provide the discipline to rise above this.  To get the most of your advisory board, provide them with regular crisp reports of your business’ performance against its KPIs well ahead of each meeting.

 

An Advisory Board needs a mix of skills – probably including financial and marketing skills.  Industry knowledge is not essential – remember that businesses are 98% the same, just like the DNA of a mouse and a human.  These people will most likely come from within your own network – or through recommendations from your network.  An Advisory Board does need a good chair to keep meetings focussed.

 

An Advisory Board may meet as frequently as monthly – or as infrequently as quarterly, depending on the needs of the business.

This is my quick summary of the points from last night’s event – but free to add comments or observations below.

A big thank you to Bruce Sheppard, Jacqui Bensemann and Mike Ashby for your role on the panel of last night’s event.  Details of the next Business Owners Forum on 16 September are here >>>.

 

 

   

Foursquare is a mobile application that allows users to connect with friends and update their location.  Users can post 140 character twitter-style tips or comments about the locations or venues they check into.  Users can choose to have their check-ins posted on their accounts on Twitter, Facebook or both.  

 

I would liken FourSquare to a location based Twitter.   And like Twitter, it is free to join and free to use. 

 

Sounds pointless, right?  

Foursquare launched in 2009 with functionality in 100 cities worldwide.  In January 2010, it expanded to allow check-ins from any location worldwide.  In March 2010, users had grown to 500,000 – and by last week it was reported that FourSquare had grown to 2,540,800 users with 28% growth in the month of July alone. 

Although penetration is still quite low in New Zealand compared to say the USA, this thing is growing faster than Twitter ever did!  

New York based FourSquare was co-founded by Dennis Crowley, who has been named one of the “Top 35 Innovators Under 35” by MIT Technology Review magazine.  FourSquare has 27 employees – and has just attracted venture capital investment of US$20 million giving it a pre-money valuation of US$95 million.  Not bad just one year after launch! 

So do you need to get your business onto FourSquare? 

If you’re in the business to business space, I’d say probably not.  

But if you’re providing goods or services to the public, yes – get yourself onto FourSquare.  Particularly if you’re involved in leisure, entertainment, hospitality or the like.  And I’d say definitely get involved if your target market includes overseas visitors. 

  

There may also be opportunities to use FourSquare to promote loyalty or advertising campaigns. We haven’t yet figured out how we’re going to harness FourSquare other than by being seen to be there, but here >>> is the Elevate CA venue on FourSquare.

 

This may only be a fad – and FourSquare users may only ever amount to being a subset of Twitter users, but the number of people using FourSquare is exploding, so why not stake your claim.  Even if the only benefit is being seen by your community to be an early adopter of new tools.