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There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it's the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.

But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease? That is the question

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it's important to weigh up the pros and cons of buying, or opting for a leasing option.

First of all, let's look at why you might decide to buy the item…

Buying: the pros and cons:

  • Pro: It's a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
  • Pro: It's yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn't reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.
  • Con: It's an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
  • Con: You may require extra funding – if you don't have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

Leasing: the pros and cons:

  • Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
  • Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.
  • Con: You don't own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you've paid if off). But if you opt for an operating lease, this is a more short-term lease and you won't own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it's important to consider what kind of leasing agreement you're entering into and what the advantages/disadvantages may be.
  • Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
  • Con: You may lose the use of the asset – if you can't keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

Talk to us about whether buying or leasing is the best way forward

Whether you opt to buy or lease your equipment isn't always a straightforward decision to make – so it's a good idea to consult with your accountant early on in the decision-making process.

We'll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for the business.

Establishing your competitive advantage

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Establishing your competitive advantage

Why do customers buy from you? Knowing what it is that makes someone choose your products and/or service over your closest competitor is critical business information.

Understanding this 'competitive advantage' is an important part of making your business stand out in the marketplace. Establishing your competitive advantage will help you create a compelling marketing message and will build value in your business – and this can all be wrapped up in your brand messaging, marketing and sales activity.

But how do you define what your key advantages are?

Key ways to understand your competitive advantage

Your competitive advantage could be something tangible, like a unique feature that your competitors simply don't have. But, equally, it doesn't have to be a feature at all – it might be your brand positioning or your customer service that sets you apart.

To drill down into the fundamental elements of your competitiveness, you need to ask some important questions about the nature of your products/services, so you know precisely why your brand appeals to your core customer base.

For example, ask yourself:

  • Were you first into the market? – If you've been a true innovator in your sector, you may have been the very first company into your current market. Whether that's a new kind of software app, or a unique piece of farming equipment, you need to protect this position and ensure you stay the dominant player in your new niche.
  • Could your product/service be copied? – If you hold a unique position in your market, it's crucial that your product/service can't be copied and rolled out to undermine your position. As such, you need to protect your intellectual property (IP) and file patents and copyrights for all the relevant IP that gives you your competitive advantage.
  • Are you niche specialists? – Your competitive advantage may be that you offer a truly niche specialism, where there aren't many competitors in this particular market. To protect this dominance, it's important to maintain your high-quality service, to work closely with your customers and to remain at the cutting edge of the specialism.
  • Can you differentiate your product/service? – Does your product stand out from other similar products offered by your competitors? The more unique you can make your offering, the more likely it is that your brand will be the one that people turn to. You can differentiate by features, price, customer service etc. to make sure you're the stand-out option for customers in this market.
  • Do you offer greater value? – Any transaction aims to bring value to your end customer. But are you able to deliver a better service or offer more value than your competitors? This may mean offering added value that can't be matched by other companies; for example, your brand being more local, more sustainably sourced, faster to be delivered, or coming with better customer support.
  • Do you offer a better price point? – Price can be a real differentiator, so you need to constantly be aware of how your prices compare to those of your competitors. Is your product cheaper than others? Or are you pitching your price at the top end of the market? The more competitive your price point is, and the more it's linked to your unique value, the easier it will be to carve out a competitive advantage.
  • Is there stable demand for your product/service? – do people need your specific product and what's the size of the demand? Do you have a strong network amongst your customer base, or is a competitor gradually winning market share and undermining your supremacy as the market leader? This needs to be regularly reviewed and assessed.
  • Is your product/service easy to buy? – The way you distribute your product or service can have a big impact on your market position. How quickly and efficiently can you deliver your offering to your customer? And do you have exclusive rights to a distribution channel that makes it easier for your customers to buy from you?
  • Does your brand have wider appeal? Do your customers identify with your brand in a profound way, and do you have 'fanboys/fangirls' who are advocates for your products? It could be that your company philosophy, your values and the way you interact with your customers all offer something unique that draws in customers and makes them stick with your brand – and, if so, there's a need to measure and retain this brand value.

Talk to us about defining your competitive advantage

The Pandemic Productivity Gap



A recent article published in the Harvard Business Review by Bain & Co suggests that the pandemic has widened the productivity gap between top performing companies and others stating, "Some have remained remarkably productive during the Covid-era, capitalizing on the latest technology to collaborate effectively and efficiently. Most, however, are less productive now than they were 12 months ago. The key difference between the best and the rest is how successful they were at managing the scarce time, talent, and energy of their workforces before Covid-19."

Atlassian data scientists also crunched the numbers on the intensity and length of work days of software users during the pandemic. The results found that workdays were longer with a general inability to separate work and home life, and workers were working longer hours (predominantly because during lockdowns, there is no set start and end of the workday routine). Interestingly, the average length of a day for Australian workers is shorter than our international peers by up to an hour pre pandemic. Australia's average working day is around 6.8 active hours whereas the US is close to 7.2.

However, working longer does not mean working more productively. Atlassian's research shows that while the length of the working day increased and the intensity of work increased earlier and later in the day, intensity during "normal" hours generally decreased.

So, how do we measure productivity? Bain & Co suggests:

The best companies have minimised wasted time and kept employees focused; the rest have not. Those that were able to collaborate effectively with team members and customers pre pandemic fared the best. Poor collaboration and inefficient work practices reduce productivity. The best have capitalised on changing work patterns to access difference-making talent (they acquire, develop, team, and lead scarce, difference-making talent). The best have found ways to engage and inspire their employees. Research shows an engaged employee is 45% more productive than one that is merely a satisfied worker.

The productivity gap was always there. The pandemic merely brought the gap into stark contrast.



How to thrive in a changed world


At Xero, we're doing all we can to help small businesses and their advisors to navigate these incredibly difficult business conditions. We're all facing uncertainty at the moment, and we know many small business owners are looking for accurate information, practical tips and advice. 

To find out more about the impact of the pandemic on small businesses and identify the strategies that have proven successful in mitigating some of the impacts of COVID-19, we commissioned Forrester Consulting to investigate. This week, we launched their findings in a study called The next chapter for small business: How to thrive in a changed world.

The study is the result of over 2,000 surveys with small business owners and consumers across six countries: Singapore, Australia, New Zealand, Canada, the U.S. and the UK. Ten in-depth interviews with SMBs were also conducted. It gets to the heart of what's hurting small businesses right now – and what's helping them.

Every small business can learn about business continuity management and business resilience from this study so we encourage you to read it in full.

In the meantime, here are some of the findings that resonated with me.

Small businesses deliver value that is distinct from large enterprises

The study shows that personal interactions with consumers are key to success. Small business owners and employees can form personal connections with their customers, show empathy, and change quickly to meet customer needs. 

One hospitality business owner in Singapore said, "The most powerful advantage a small business has over a larger one is the human story… That inspires confidence and creates a personal connection." 

Some consumer behaviours adopted during COVID-19 are here to stay

It's no surprise that during the pandemic, small business revenue from online channels has seen a 12 percent increase from 2019.

More importantly, this trend is here to stay. While consumers expect to return to their old ways of spending and will return to physical stores, they also expect to keep using online channels.

Thriving in a world impacted by COVID-19 requires agility and strategic thinking

We all know small business owners have been pivoting fast, planning ahead and working to excel across all areas of business. That's not an easy task at any time. 

Prior to COVID-19, a restaurant owner in North America was already very connected in the local community and put a lot of effort into marketing and branding. During the crisis, he leveraged network support and reduced operational costs. He focused on digital media spending and encouraged support from the local community with the message "support local".

Key Actions

Forrester Consulting made five key recommendations on what small business owners can do to help their businesses thrive. 

Each recommendation is paired with a practical step you can action: 

  • Make company and financial information easily accessible and digitised
  • Create emotional connections with your customers
  • Start from your accountant to seek out available help in the ecosystem
  • Increase efficiency with cloud-based tools
  • Leverage partner data sources to predict and plan for the future

Read the full study to learn more about its recommendations, top actions to take, and to dive into the details.

Have you got a plan for growth in your business?

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Have you got a plan for growth in your business?

Growth doesn't need to mean more risk, more hours and more headaches.

 

It may be as simple as identifying where the opportunities for growth are in your business and industry. Once you've done this you can establish what you and your team are going to have to do in order to maximise these opportunities, and how you will navigate the likely obstacles.

 

Here are a couple of tips to get you thinking about growth:

 

  1. Do an audit to document your growth over time. Analyse all the information you have to understand how you got to where you are right now. This will help you to plan for future growth.

     

  2. Next, put a one page plan together with the big objectives and what you'll realistically need to do in order to achieve them. (identify the tasks and people)

     

  3. Establish some key performance indicators to keep the momentum up and visit these regularly to ensure you're on track.

     

 

As a business owner, you can get bogged down in the demands of day-to-day business. Taking time out of the business can give you some much needed perspective. We can help build your business plan and identify the steps you'll need to achieve it.

 

Business growth can be perceived as something scary, but when you have a plan and it's done right, it can be very motivating and rewarding.

 

With a bit of planning, the right systems, people and resources, there is tremendous opportunity to grow and scale your business to the next level to hit your growth targets.

 

We can help you get started.

 

To arrange a meeting to discuss please contact our office http://www.clarkemcewan.com.au/contact_us/request_an_appointment

Reducing your lock up days to free up cash

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Reducing your lock up days to free up cash

It's vital for businesses to free up as much cash as possible, particularly in these tough economic times. Your 'lock up days' is the number of days it takes to convert your debtors, stock and work in progress into cash.

A high number of lock up days means your business needs to have more cash injected, either from you or the bank. You also have a higher risk of losing that cash, particularly if a lot of it is locked up in your debtors. Worse still, you're likely to be paying tax on that lock up figure before you've received the cash from your customers.

To calculate your lock up days:

(Debtors + stock + work in progress) / annual sales * 365

For example, if debtors are $120,000, stock is $45,000, work in progress is $55,000 and annual sales is $1,200,000, your lock up days would be 67 days (($120,000 + $45,000 + $55,000) / $1,200,000 * 365).

Reducing lock up days means you'll have more cash available in your business,so how can you reduce your lock up days?

1. Increase your sales.
Do you know the five ways to increase your sales?

2. Invoice more often.
Consider sending progress invoices as well as invoices on completion or requesting a deposit before work has started.

3. Ensure customers agree to your Terms of Trade.
Don't start work until your customer has signed off the Terms of Trade and make sure you stick to them by following up customers as soon as payments become overdue.

4. Reduce stock holdings.
Review stock on hand and reduce where possible. Consider getting rid of obsolete or slow moving stock.

5. Use an independent debt collector.
This should be a term in your Terms of Trade, including a clause specifying that the customer will be liable to pay associated costs.

6. Change your payment terms.
Request payment within 7 days of invoice rather than on the 20th of the month following the invoice.

7. Reduce errors and re-work.
Review your processes and provide additional training.

8. Set targets for stock levels / invoicing levels.
Reward your team for achieving the targets.

9. Improve your reporting of lock up.
You can manage what you don't measure.

10. Ask us for 10 more ideas.
We can help you identify the best strategies to reduce your lock up days.

"You must gain control over your money or the lack of it will forever control you." - Dave Ramsey

Planning for seasonal dips in income

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Planning for seasonal dips in income

Seasonal dips in income can be highly challenging when you're a small business. But there are proactive ways to predict, plan for and overcome these dips in revenue.

The key to dealing with seasonal dips is to know when they're most likely to occur, and to have measures in place to spread your income and revenue pipeline over the course of the year.

Understanding seasonality in your sector

If your business is seasonal such as pool supplies, or a ski gear specialist, you'll be used to the peaks and troughs, but many 'non-seasonal' businesses experience times during the financial year where sales and revenue peak – and, on the flipside, where sales and revenue experience a pronounced dip.

When income is low at certain times of the year, it makes for challenging times.

So, what are the key ways to plan for this kind of seasonality?

  • Forecast your seasonality – it's vital to know WHEN you're most likely to experience any seasonal dips. Looking at benchmarking reports for your industry is one way to predict the seasonality in your niche or sector. But you can also use your own accounting data to great effect. Look back through your profit & loss reports and spot where the peaks and troughs have occurred over preceding years.
  • Charge a premium in peak time – one straightforward approach is to apply premium pricing for your products/services during the busy season. By increasing your pricing, you boost your overall revenue, giving you more working capital to see you through the leaner months when sales and income are at their lowest.
  • Offer additional peak-time services – offering added extras and other additional service lines during peak time is another way to maximise the season. In the months where customers are most engaged, look to upsell these premium services and offer more value. Satisfied clients will be more inclined to pay for added extras, giving you an increased revenue stream from the same number of customers.
  • Target other markets – exploring other related markets is another useful tactic. When you're experiencing downtime, look for other ways to monetise your existing assets, products or services. For example, if you're a hotel where sales peak in summertime, offer discounted conference space in the winter months to boost revenue.
  • Diversify your products/services – if one product/service has a known seasonal dip, look at adding an additional product or service to offset this downtime. For example, a a ski resort could promote bike-riding or hiking breaks during the warmer summer months to keep revenue constant. Likewise a pool maintenance firm could establish an outdoor fireplace business for the colder months.
  • Have a regional e-commerce strategy – If you're dependent on a small local market, broadening your marketing and e-commerce strategies can help to attract a wider customer base – and bolster sales. Paid advertising through Facebook, LinkedIn or Twitter can easily target new geographical markets, bringing in new customers and giving your revenue a much-needed uplift during seasonal troughs.

Talk to us about planning for seasonality

If your business is struggling with seasonal dips, and the resulting impact on cashflow, come and talk to us. We'll help you identify the timing of your seasonal downtime, and come up with a clear strategy for stabilising your income across the year.

Get in touch to start beating those seasonal dips.

Succession Planning for Small Businesses

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Succession planning for small businesses

It takes guts to start a business. It also takes a strategic mindset to succeed.

Business owners are no strangers to weighing risk and navigating uncertainty, but the current climate has dialled everything up. Many business owners face the uncomfortable position of having to remap carefully thought-out succession plans and exit strategies and to consider selling their business before they're ready and, possibly, for less than it's worth.

Transition may be a better option

Rob Young, Managing Director of Platform 1, works with business owners on ensuring they get the best possible return when selling their business. Rob's advice is to start by thinking about what options you have first.

There are five different ways to sell:

  1. Close the business down and sell the assets
  2. Sell to a family member
  3. Sell to an employee
  4. Just a straight sale to an outside party
  5. Gradual buy-out - The Platform 1 model.

The Platform 1 model is a gradual buy-out program. It involves finding a manager to take the reins early on. Gradual buy-out a process that involves:

  • figuring out what kind of individual would be right to run the business; finding that person, and developing them.
  • Creating a plan where the new manager buys in gradually over 3 to 6 years. The objective is to get the owner out of the business physically as quickly as possible by transferring relationships and processes to the incoming person, so the owner becomes more of an investor rather than a manager.

Preparing for sale - what's important

  • Get your house in order - Ensure you have systems and processes in place so the business isn't reliant on you, but can run as a standalone entity.
  • Maximise your profit - Make sure that you are not taking decisions to minimise your tax liability – because what you're trying to do is create a profitable business.

Don't put off your succession plan - even if you are not ready to sell

It's a good idea to think about this long before you need to sell so that you maximise the value of the business and achieve a better outcome. It's also worth remembering that retirement doesn't need to be doing nothing. If your business can run as an asset without your involvement, you don't have to sell it completely, so not selling down 100% of the business is a viable option.

Talk to us today about your succession plan

If you don't already have a succession plan in place, we can help so that you have options when you need them.

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Have you got a strategy for a financially stress-free holiday period? 

Christmas holiday breaks are a chance to recharge for the year ahead especially after the year we have had. We look forward to warmer weather and finally setting up an out-of-office email for the break. However, for business owners, this time is a stressful without careful cash-flow planning.Even if you do continue to operate through the holiday shutdown season, your customers' financial behaviour may not remain the same.

The strategies and tips shared below are generalised, however, we are here if you need to budget and prepare a cash-flow forecast. We can also help if you need assistance in applying for short term finance to get you through the break.

Why is cash-flow planning particularly important at this time of year?

Staff leave needs to be covered in addition to your normal fixed overheads like rent, creditors and tax compliance. The budget and forecasting process ensures you know your numbers and are prepared. If you are shutting down, you won't be driving revenue during this period and sales may take time to get started again in the new year.

Here are some simple strategies that can help

Decide your Christmas and holiday break dates – confirm these with staff, customers and suppliers.

Budget and plan for annual leave – remember the pay rates may be higher than standard hourly rates, also factor in statutory public holidays.

Decide if you are going to pay out leave in full at the beginning of the Christmas break or continue to pay as usual throughout the break.

Review your work in progress (WIP) - plan to complete jobs or services that can be invoiced and paid before Christmas (remember if you don't invoice and get paid before Christmas, you may not see the money until mid to late January).

Capacity planning - There is often a rush to get everything done before Christmas, whether it's the kitchen benchtop installed or the beauty treatment before the break, so make sure you have the capacity to maximise on this.

Stock-take - Do you need to order in goods now to be able to complete work in progress? Check that there is stock on hand available.

Making an arrangement with the Tax Office - if you find you can not make payments, it is possible to apply for an instalment arrangement. There are costs associated with this, however it may provide a solution that gets you through the holiday period. Talk to us, we can help.

Need financial support?

If you can't make ends meet, now is the time to organise short term financial relief. Please let us know if you need any help with cash-flow forecasting, budgeting or finance applications.



Strategic alliance: the benefits of working together

Your business may compete head-to-head with a number of other companies, but this doesn't mean you have to treat ALL other businesses as if they are the competition. In fact, there are real benefits in creating strategic alliances with other like-minded organisations.

When you look at the wider marketplace, you'll see that there are businesses out there that may well compliment your offering. And by working together (rather than against each other) it's possible to become valued strategic partners, collaborating to serve your joint customers, improve brand awareness and, ultimately, expand your target market.

If this sounds like a positive strategy, now's the time to do your homework and start hunting down the best strategic partners for your business.

Working to serve a shared customer base

Strategic alliances are all about finding the common ground between you and your intended partner – and this means finding the best ways to combine your efforts. If you can share the same customer audience, and create a complementary way of meeting their needs, that creates a broader, more connected way of growing both companies.

Finding a company that's interested in forming a strategic alliance

  1. Find partners in complementary sectors – if you're an accounting firm, like us, it makes sense to partner with solicitors, lawyers and other professional services providers who can help your clients. If you're a maker of shoes it makes sense to partner with a clothing manufacturer that shares your same sense of style and purpose. The key here is to find a shared audience or customer need, and to create some real synergy between your two businesses.
  2. Take part in business networking and events – to get a wider understanding of your local, or industry specific, business network, it's worth taking part in plenty of online and offline business events. You'll meet new people, hear about new brands and will find it easier to find your ideal strategic partner. The wider your business network, the more choices you have for an alliance.
  3. Look at crossover between your target audiences – once you've found a potential strategic partner, it's important to take a detailed look at the crossover between your partner's audience and your audience. Do they shop through the same channels? Do they fit a certain age group or social demographic? Are these customers local, or are they part of a national or global online customer base? How large is their database?
  4. Cross-reference your customer databases – by sharing and comparing your client relationship management (CRM) data, you can cross-reference both sets of customer data and see where there's overlap, or where you may already share some of the same customers. The better you understand each other's customers, the more likely it is that you'll find some common ground for shared marketing and promotion.
  5. Run joint events and promotions – presenting joint webinars with your strategic partner, or running joint promotions. By finding a common theme, you bring both audiences together and reinforce the alliance between your two brands. You also reduce the expenditure by sharing the costs and reach a wider audience.
  6. Combine your R&D efforts – to move your alliance forward, you can also try combining your research and development (R&D) activity, to find new products, new services and new ways of keeping your joint customers happy. By sharing the time, costs and effort of developing new offerings, both companies will benefit – and you keep your businesses at the cutting edge of their respective sectors or specialisms.