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Dear subscriber, |
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| Happy Easter to you, and we hope this message finds you well and taking active steps to manage your future. In this first newsletter of 2009, you will find:  Entrepreneur’s Corner – a new feature column with commentary on current events
Coming Events – Dates for your diary
Announcements – Related activities or organisations that may interest you
Corporate Engagement Opportunities – invitations for your company to get involved
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The phone has not stopped ringing in recent months with questions from entrepreneurs concerning “what should I do?” So beginning this quarter we launch a regular feature called “Entrepreneur’s Corner”. We hope you find this column stimulating, & unembellished in nature. |
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Good debt is taken on to purchase assets and fund expenses for a cluster of activity, be it a new store, production plant, research & development or to find a growth strategy. Let’s term this an “activity cluster” as that suggests the linking of capital, revenues and expenses that form a pooled unit. There is an expectation for this activity to produce revenues and cash flows within a prescribed period of time, and this is termed a Return on Investment.
Bad debt is that taken on to fund operating cash flows, usually in a pooled environment, where the link between the debt and any investment in an activity cluster is lost. Often it creeps upward, and takes the form of leases, expanding lines of credit, staff costs or even personal Director-tied debt. There is generally little accounting of the returns brought through this debt. Funding your operations via growing credit reflects a poorly performing business at work. That is, operations are not producing cash & profits. And expenses are being paid by drawing on credit sources. Hence, there is an operating deficit underneath the surface, whether the accounts show this or not. It is essential that entrepreneurs are brutally honest in distinguishing between good & bad debt, and not kid themselves. Too often companies form the view that things are fine, as long as there is cash in the bank. They blur the lines between true cash, and lines of credit. As long as the lines of credit flow, there is little urgency to address the growing cracks in the underlying business performance. But the party comes to an abrupt halt, when the debt music stops flowing. And that can be extremely painful if not catastrophic. This is analogous to “Honey, let’s go out to eat tonight, we still have credit on the credit card.” In contrast to forming a conscious view of how much the house hold is saving, and deciding to consume some savings via a dining experience. Likewise, businesses need to budget for a profit – and make those discretionary decisions to forego profits for an investment in a future activity cluster with an expected ROI.
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Can you specify the assets, employees, revenues, expenses and profits/cash flows that accrue to your “activity clusters”? Do you know which are your most profitable products, projects, stores, or customers? Do you know which ones lose money for you? Have you fired a customer lately, or declined new business, as the terms were unfavourable?
These are all signs of a healthier business, and stronger management style. In numerous businesses we have worked with recently, the discussion has focused on pruning the edges wisely. This begins with quality information to track where your profits/cash come from, and where the losses arise. Many businesses have untracked cross-subsidies embedded in them. As you consider cost cutting, we encourage you to prune based on “activity cluster” – choose to discontinue a product, project, store, or drop customers where they are not a healthy long term basis for both supplier and customer. If needed, raise prices to affect a profitable product. Explain this to your customers that if you don’t, you will need to discontinue the business. Honest communication can make or break you on this point. Likewise, act with a clear collections policy. The use of EFT, Credit Cards and Accounts needs to be revisited. Customers that don’t pay in a timely fashion represent poor business. So use discounts, perhaps 2%, for customers who sign up for timely automatic EFT payment. And raise prices for those activities that are unprofitable, or else drop them and the assets, employees associated with them. Poor quality cost cutting strategies look like across the board cuts to marketing. Or dropping the use of contractors, but not changing the mix of your business activities to align with profitable operations.
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We have no issue with taking on good debt by Governments to build assets that will generate dividends for future generations. Examples of such investments might be building dams, bridges, roads, rail/port facilities. The proposed subsidy for insulation in homes to reduce power usage will pay for itself quickly for households that take up the offer.
After the Depression the Government built the Snowy Hydro Scheme for multiple purposes including irrigation of vast tracts of new farm land, protection against drought, and peak power generation. It is a legacy asset of immeasurable wealth to the nation. Likewise, the announced National Broadband Network proposes to establish core national infrastructure to boost productivity and international competitiveness. There are doubts about the ability to generate sufficient returns on such a sizeable investment, which could result in taxpayers effectively footing any shortfall. But like many infrastructure deals such as airports, ports, etc, there are in-built subsidies as well. Yet, no doubt the national competitive posture will be improved, and other nations are making similar commitments. In the current funding climate, it is clear the government is the best positioned party to lead such a commitment. On a basic level, the underlying economic issue at work has been insufficient savings, over-consumption, and a reliance on asset inflation to generate equity, which is then periodically withdrawn to pay off excessive debts. This has been a foundation with widening cracks. It appears that the only way out of this is through frugality, savings, debt reduction and – gradually – repairing balance sheets over time. There are theoretical economic arguments for stimulating consumption, but the historical evidence appears to show that government stimuli have been to no avail. Japan had 8 major stimulus programs in the 1990’s, without measurable results. Other empirical studies seem to echo this point as well. In fact, Governments only ever act in an economic support role, as John Howard recently admitted to a Journalist. One criterion for Government investment would be for expenditures to provide a similar (to the Snowy Scheme) tangible long term return in proportion to the investment value made. The provision of cash handouts, simply ends up shifting wealth from today (surplus Govt funds) to a small number of individuals (who will save or consume), at the expense of future generations (our children) to repay. We may come to rue leaving our children with extraordinary debts to pay but few matching assets to show for it.
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When: Tuesday May 5, 2009
Where: Customs House Barnet Long Room, 31 Alfred St., Circular Quay
Assess your business health in this hands-on session. Analyse key indicators, gain perspective and take action - find out more here.
Where: K-Power, 271 Sussex Street, Sydney City
Time: 5-8pm
Place: 680 George Street, Ernst & Young Sydney City Offices
Time: 5:30 for 6pm Start, Until 8pm
Come hear an exciting panel debate in hypothetical format, featuring a moderator led discussion with three seasoned entrepreneurs as they share their coping & success strategies for managing in the current climate. Numbers are strictly limited – register today to secure your spot.
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Ernst & Young is now searching for outstanding entrepreneurs from around Australia who embody the values and spirit of the Entrepreneur Of The Year program. Nominations can be submitted by anyone associated with a successful entrepreneur, or you may self-nominate. To find out more about the nomination process and Entrepreneur Of The Year program, please contact Sally Collins on Tel: +61 2 8295 6424 or go to the website.
Dell today announced its call for entries for the global 2009 Dell Small Business Excellence Award. In its second year in Australia, the award gives small businesses that apply technology in innovative ways to better serve customers a chance to win up to US$50,000 in Dell solutions and meeting time with Michael Dell. Enter the Dell Small Business Excellence Awards here.
New to UNSW this year is the Social Endeavour Prize. This competition is for student teams (paired up with a host charity) to generate innovative and creative strategies to fundraise. Think “red Nose Day” or “Red Shield Appeal.”
Students will benefit from exposure to real charities and the not-for-profit sector. Charities will benefit from fresh and energetic students bringing their ideas and talents to their institutions.
Participating charities will be the big winners of this competition – in addition to all money raised, the charity will have the winning students volunteer for a week to implement their ideas!
The motivations for entry are many – help a worthy cause, get creative, receive recognition and of course, win prize money.
1st Prize: $4000
2nd prize: $3000
3rd prize: $1000
Expressions of interest for Teams will close on April 23rd.
Go here for more information.
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| A very successful pilot Internship program was run this summer where nine students in their penultimate year partook in paid internships with fast-growing companies. These included ResMed, Brasserie Bread, Harris Farm Markets, Worley Parsons, NICTA, ATP Innovations, and Monkey Steel. The highly competitive program reduced 375 invited students, to a short list of 18, who competed for 9 positions. Students shadowed proven entrepreneurs, gaining valuable insights to salesmanship, opportunity analysis, financial literacy, and personal leadership.
A documentary is being filmed about their experiences, and will screen on TV in June. If your company is able to take an Intern for summer 2009/10, please contact us for more information.
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