Financial Challenges for the Year Ahead

Mead Partners Chartered Accountants have provided a number of timely articles that comment on issues that impact on all businesses associated with the CMPA.

WITH 2013 shaping up to be an unpredictable year, it is worthwhile to use this time in setting up an effective business strategy to deal with any financial uncertainty. Sentiment among business owners remains pessimistic, with many struggling to keep their heads above water in this fluctuating economy.

Reducing costs is one way business owners can get themselves into a financially stable position in the year ahead.

• Look at forecasting sales ahead of time. With foresight, businesses may be able to negotiate better prices for bulk quantities of goods or packaging.
• Businesses can manage margins by regularly looking at the percentage of cost of goods, (COGS) and keeping track of when it might be a good idea to renegotiate or seek alternative suppliers.
• Check industry benchmarks to see what the top performers are achieving and investigate how these businesses achieve their margins.
• Reduce materials on the job by managing wastage and write-offs. Seek to review ordering methods and introduce systems like job cost sheets to track the costs of goods used on jobs.
• Try implementing a quoting/estimating system and measure the actual end cost for each job against the estimation. Compare how accurate the quotes were and work out where it varied and why.
• Businesses that outsource work should look at having just one person manage the jobs who will have a good understanding of the status and progress to ensure all jobs get finished efficiently.
• Maintain a high level of quality control to avoid re-working tasks. Businesses can utilise checklists and templates to maintain high standards.
• Key Performance Indicators (KPI’s) can be an efficient way of tracking the successes and goals of the business, by comparing the number of quotes issued versus the number of jobs won and lost.
• Businesses should be wary of extending bank credit if it is not necessary and should remain vigilant with debtor management in order to avoid bad debt.

With the 2013 financial year shaping up to be one of paradoxes, business owners have an opportunity to kick-start the new year by making simple, yet effective changes that will cut costs and increase profitability.

PROTECTING BUSINESS ASSETS WITH THE PPSA

With record businesses going into administration, small business owners should look to safeguard their assets and protect their finances under the Personal Property Securities Act (PPSA).

The PPSA came into effect this time last year. The aim of the Act was to improve the ability of individuals and businesses, particularly small to medium sized businesses to use more of their property to secure lending.

Prior to the PPSA reform, the rules for registering security interest over personal property were different in every state and territory- this has now been streamlined to a national register, the Personal Property Securities Register (PPSR).

The PPSA is very broad and covers both tangible and intangible assets such as equipment, motor vehicles, intellectual property and licences, interests in all property except land and interests granted by all entities.

The Act has practical implications for businesses which have to ensure they register the ‘security’ of their assets; otherwise they may end up having no claim over the asset in an insolvency scenario.

This is particularly the case for businesses who lease out equipment or supply goods to other businesses on delayed settlement.

In a simplified example, imagine a business that leases out computer equipment to offices. One of the lessees, an IT company, goes into administration. In theory, the computers can be sold to payback the IT companies creditors, unless the computer equipment business has registered an interest in their assets.

The PPSA gives priority to a secured creditor who has registered his or her security interest over a creditor who has not taken such a step. Businesses which may be affected are those that:

• Borrow or lend money
• Purchase or sell goods on agreement, assignment or credit
• Grow crops or raise livestock
• Own/lease machinery or vehicles

Understanding the PPSA is difficult and time consuming, and business owners should consult a financial advisor to see whether the PPSA affects their small business.

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