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Managing your firm through the global financial crisis. Stephen Michell, Partner HLB Mann Judd. Overview of Workshop. Introduction/Purpose of Workshop Industry Overview and Trends Block 1 – Risk Management Block 2 – Cash Flow Management Block 3 – Business Opportunities. Introduction. - PowerPoint PPT Presentation
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Managing your firm through the global
financial crisisStephen Michell, Partner
HLB Mann Judd
Overview of Workshop
Introduction/Purpose of Workshop Industry Overview and Trends Block 1 – Risk Management Block 2 – Cash Flow Management Block 3 – Business Opportunities
Introduction
Purpose of workshop:– Help assess how your business is
travelling during the financial crisis– Implications of being inactive/reactive in
managing your business– How to proactively manage your
business during these difficult times
Signs of the Downturn
As at 31 March 2009 the ATO had 194,734 debt cases and payment arrangement worth $2.54 billion.1
This is a 12.5 per cent increase in the number of cases and a 8.8 per cent rise in value compared to a year earlier.1
March 2009 saw 1,095 companies enter into some form of insolvency administration. This is the worst March result since ASIC commenced recording statistics in 1999.2
The number of companies entering some form of insolvency administration for the year ended 31 March 2009 was 9,775 (7,540 in 2008).2
There were 7,164 new bankruptcies in the March 2009 quarter against the March 2008 quarter (6,303) a 13.66 increase. Bankruptcies also increased 7.75 per cent on the December 2008 quarter.3
1 AFR – 22/5/20092 ASIC3 ITSA
Reality Check
Well known companies have already been affected by the current economic turmoil
These include:- Nylex - ABC Learning Centres
- Strathfield Car Radio - Storm Financial- Handy Hire Trailers - Hans Smallgoods- Midas - Timbercorp- Great Southern Ltd
Industry Trends
From May 2009 survey of members:
Industry Trends
Industry Trends
Industry Trends
Last recession (early 90s) a large number of printing businesses ceased trading or went into liquidation
The survey trends illustrates the importance of being proactive in such times
Implications of Failure
1. Potential for civil or criminal sanctions for insolvent trading
2. Could be made liable for debts to the ATO through a director penalty notice
3. Bankruptcy – call up of guarantees / loss of family home
4. Domestic discord5. Potential for being banned as a director
What do successful businesses do that those which fail don’t?– Risk management – Cash flow management – Making the most of opportunities
RISK MANAGEMENTBlock 1
Risk Management and Printing Industries Members
The recent Printing Industries survey indicated the following: Around 60% of Printing Industries members have never undertaken risk analysisMore than 5% do not know what risk management isUnder 1 in 3 members think they understand all the business risks they are facingAlmost a quarter of those performing risk analysis do not understand all the risks their business face
Risk framework
Risk framework
Leadership of the business Skill level of management Human resource management Succession
Threat of new entrants Bargaining power of suppliers Bargaining power of customers Industry risk
Stock Profitability Finance arrangements Debtors Creditors General
Case study and group discussion
CASE STUDY What risks can you identify? What is the implication of each risk? What can be done to reduce or
overcome the risk?
Monitor and Risk Review
Establish systems to monitor risks Monitor risks and strategies deployed to
manage Remember risks threaten the ability of
your business to achieve set objectives Remember risks can threaten the ability
to survive this global economic crisis
Summary – Top 10 Risks to Look out for
earning expectations are not met
cash flow is tight and operating losses persist (there never seems to be enough cash!)
credit lines are fully extended. The company is not in compliance with debt covenants
vendor and customer relationships are deteriorating
Summary – Top 10 Risks (cont.)
market share is declining
the business is reliant on one or two customers
BAS statements are lodged but payments are behind
creditor calls demanding payments have increased, or creditor has stopped supply
Summary – Top 10 Risks (cont.)
You can not obtain meaningful financial information from your accounting system
Staff turnover is high (especially with key staff)
Please take 25 minutes for
MORNING TEA
Bank Presentation Introduction
The recent Printing Industries survey indicated the following:2 in 5 Printing Industries members describe their relationships with their bank as averageAlmost 10% of members have either a poor relationship or have never really thought about it10% of members never see their bank1 in 3 see their bank only on an ad-hoc basis1 in 3 members do not know their banking terms or covenant arrangements
CASH FLOW MANAGEMENT
Block 2
Cash Flow Management and Printing Industries Members
The recent Printing Industries survey indicated the following:
Almost two-thirds of members have had their cash flows impacted by the economic crisis
Almost 4 in 10 members do not prepare cash flow forecasts
Half of those that do forecast never compare this to actual cash flow
More than a quarter of members indicated that their customers either hardly or only sometimes meet their terms of trade
More than 10% either never or only sometimes meet their suppliers’ terms of trade
Cash flow management
Cash flow is not profitCash management is critically
important
Signs your cash flow may be a problem
Your bank overdraft facility is sitting at its maximum all the time
You are not paying your company’s statutory obligations on time (e.g. tax liabilities, superannuation contributions etc.)
You are stretching your payments to your trade creditors
Stock levels are building up (stock turn is declining)
Debtors are taking longer to pay you (average debtor days is increasing)
Cash flow management tips
Review terms of trade with your customers – ensure they are up to date and signed
Monitor your debtors closely and regularly Choose your customers wisely Have a plan for recovering money owed to you Consider offering discounts for early payment Consider obtaining personal guarantees from your
customer’s directors which can be used in the event of non-payment
Include an “all-monies” retention of title clause. Consider having your terms of trade printed on the reverse side of your invoices with reference on the front of the invoice
DOs
Cash flow management tips
Ignore the function of debt collection Give further credit to those customers who
have exceeded their trading terms Give credit before undertaking a credit check of
the customer Agree to additional time for payment without
documented agreed arrangements
DON’Ts
Cash flow management tips
Seek suppliers willingness to supply stock on consignment
Negotiate with suppliers to extend credit terms when appropriate
Maintain healthy relationships with suppliers and ongoing discussions. If a creditor is made aware of your difficulty to stick to the paying terms, they may be more willing to extend your credit.
Develop a contingency plan on how to obtain supply of goods or services should a supplier fail
DOs
Cash flow management tips
Pay your debts late without contacting the relevant supplier(s)
Be unplanned when it comes to your suppliers
DON’Ts
Cash flow management tips
Make sure your business has a good purchase order system
Ensure you have an accurate listing of your supplies and prices
Ensure a competent person is responsible for ordering
Have a documented set of procedures for ordering
DOs
Cash flow management tips
Order stock in an ad hoc manner Underestimate the level of cash tied up in
inventory on hand
DON’Ts
Cash Flow Management Conclusions
Develop a process to monitor and collect debts
Ensure you have signed terms of trade with customers
Send out statements on a monthly basis Contact all debtors outside normal trading
terms Stop credit for delinquent payers Obtain firm commitments from debtors Do not over order stock Negotiate with creditors – stay in contact
BUSINESS OPPORTUNITIES
Block 3
Business Planning and Printing Industries Members
The recent Printing Industries survey indicated the following:3 in 10 of those respondents contemplating retirement in the short term have deferred their plans due to the economic downturn.More than one fifth of these people have deferred their retirement plans by more than 5 years.More than 70% of members do not have a business planThose that do more than 10% never review it
Case study
What are the opportunities presented in the case study?
Thriving - making the most of business opportunities
Understand your business and where you make your profit and losses
Conduct opportunity cost analysis and prepare a business case before making any commitments
Ensure management has a strategic focus and plan
Evaluate outsourcing options
Look at procurement opportunities and
inventory decisions
Tips - making the most of business opportunities
Consider developing strategic alliances –
focus on your competitive advantage
Consider acquisition of complimentary
businesses
Consider tax planning – optimise your tax
position
Explore all Government incentive programs
Don’t be afraid to seek professional help
Conclusion
See HLB Mann Judd