DECEMBER 2015 Issue
2016: S TA R T T H I N K I N G D I F F E R E N T LY
“Innovation is seeing what everybody has seen and thinking what nobody has thought.” - Dr Albert Szent-Györgyi
Also inside this issue
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• Leading the Line
• Driving Business Innovation
• Highly Effective Farmers
•C lient Spotlight: Custom Concrete Products and Brown Paper Bag
• Selling Your Business
• The Hidden Value Of An Audit
• Let’s Talk Powers
MERRY CHRISTMAS AND A HAPPY NEW YEAR FROM THE POWERS TEAM!
DRIVING BUSINESS INNOVATION
by Ian Congram Managing Director POWERS ACCOUNTANTS & ADVISORS
Why is it that some businesses only last a few years while others last centuries? The answer lies in their ability to continuously innovate. The concept of innovation is quite diverse, depending mainly on its application. One definition of innovation is the successful exploration of new ideas.
Radical innovation represents a drastic change in the way that the product or the service is consumed. E.g. The evolution of the music CD to digital files in MP3 extension.
Innovations are important because they allow companies to access new markets, increase revenues, form new partnerships, learn new knowledge and increase the value of their brands.
Practical Innovation Steps
Product innovation consists of changes in product attributes, altering how the product is noticed by consumers. It will include the market introduction of new, redesigned or substantially improved goods or services. E.g. A car with automatic transmission compared to a manual one. Process innovation consists of changes regarding the production process. It does not necessarily have an impact on the final product but generates benefits in the production process, increasing productivity and reducing costs. E.g. Cars produced by robots compared to those produced by human workers. Business model innovation consists of changes in the business model, altering the way the product or service is offered to the market. It does not necessarily imply changes in the product or even in the production process but in the way it is brought to the market. Business model innovation is probably the most challenging of the innovation types as it will likely present a business with major requirements for change. Often, the very capabilities or processes that have been optimised to make a company successful and profitable will become the targets for transformation. E.g. Apple has evolved its customer offers from personal computers to music delivery devices and services that include mobile phones. Incremental innovation is not about huge sweeping changes. On the contrary, firms that innovate incrementally tend to do so just a little bit at a time. It reflects small continuous improvements in products or product lines, such as cost cutting or feature improvements in existing products or services. E.g. The evolution of common CD to double CD, capable of storing twice as many tracks. LET’S TALK...BUSINESS Page 2
1. Think Differently. The same old thinking leads to the same old conclusions. In order to start the process, you have to be able to open yourself up to new thinking. 2. Strategic Planning. Take all of the ideas and create a strategic plan or direction. It’s like a team sport. Instead of players, you are taking all of the ideas and focusing them into a single direction so that they can all work together effectively. 3. Implementation. Apply project management. Each of the items in the strategic plan becomes a series of projects. These projects are broken down into 3 categories: shortterm (less than 6 months), medium-term (6 months to less than 2 years) and long-term (greater than 2 years). 4. Assess. Measure and look at what you have done. What has been learned? How has the innovation affected the business, both from a bottom line and a competitive perspective? What did we do well? What can we improve? 5. Start Again. This is a continuous process. It is not something you do once, say ‘glad that is over’ and then go back to normal. It is about continually creating a new normal because the world changes constantly and rapidly. It is no longer the speed of business that creates challenges. It is the speed of disruption that is permeating our business models in seemingly every possible way that is causing businesses to rethink how they operate. It is the speed of disruption that is also the trigger that is causing entire industries to think about how to re-purpose what they have. Welcome to the new business paradigm. Welcome to innovation management.
CLIENT SPOTLIGHT CUSTOM CONCRETE PRODUCTS WWW.CUSTOMCONCRETEPRODUCTS.COM.AU
Custom Concrete Products is a local Queensland based company situated in Loganholme solely owned by Cedric Luyt. The company started in October 2003 and was first named Kangocrete, which was difficult to pronounce and did not showcase the concrete products that they manufactured. With only a handful of products, they supplied the general public with landscaped yards, retaining walls and pavers. This was a difficult time for the business as concrete is a tough market. They were fortunate enough to start supplying pavers to Bunnings Warehouse. Although this was only to a few stores, they knew that if they supplied a good quality product that presented well at store level, they would make a name for themselves. After many years of trading with Bunnings they have formed a sound relationship with the Merchandising Buyer in the Head Office in Melbourne and have introduced new
products to expand their range. They have a dedicated team of 10 employees who make this all possible. They are hardworking and have a positive attitude which has contributed to the success of the business. Cedric re-registered the company, aptly named Custom Concrete Products to let customers know exactly what they manufactured. They currently supply 150 Bunnings Warehouse stores on the East Coast of Australia and have recently started supplying Masters Home Improvement stores in QLD, NSW and VIC. Sales over the past 12 months have reflected growth for the company. They have expanded the plant and are currently installing a shed and will be commissioning a new batching plant in the New Year. They would like to thank John Cox from Powers for his expertise in dealing with their financial matters over the past year.
CLIENT SPOTLIGHT BROWN PAPER BAG WWW.BROWNPAPERBAG.COM.AU
Rob Breuer and Mark Stenhouse, Directors of IWeb Solutions and Brown Paper Bag, have known Powers Director, Geoff Arnold since their studying days at Central Queensland University in the early 1990s.
with the information being available on the web at www. solarschools.net. Solar schools also monitor schools in all states of Australia and in New Zealand via the sister program, “Schoolgen”, sponsored by Genesis Energy.
BS Computer Solutions was their first business together. Initial projects included a Database for Queensland Schools, creating Microsoft Word templates for Ergon Energy and undertaking various corporate computer training workshops.
EQ Solar Schools is the largest distributed Rooftop solar PV in Australia with an installed Capacity of 7555 kW. EQ Solar Schools has produced over 25GW of energy from the installed solar systems, equating to CO2 savings equivalent to planting 457,994 trees or the same energy as driving 1,125,684 laps of the Monaco Grand Prix.
IWeb Solutions, established in 2001, continued to provide IT consulting services and solutions for such organisations as Stanwell, Ergon Energy and the Colorado Group. Brown Paper Bag was formed in 2006. Specialising in graphic design and web application development, Brown Paper Bag has grown into an award winning specialist solutions provider that focuses on creating innovative and effective online applications. In 2008 Rob and Mark tendered for Education Queensland’s Solar Schools project, to monitor the Solar systems in Queensland State Schools. The project is integrated into the curriculum to teach students about sustainable energy,
Upon winning the tender, the first person Rob rang was Geoff Arnold. “We have won this tender – what do we do next?” Since then, Geoff has worked closely with Rob and Mark, establishing a business structure that suited their needs and worked with them to restructure the ownership. “Geoff has been the person who makes sure the accounting structure is what we need for our business.” “Our success has been due to having the right partner that you can work with. Rob is definitely the creative genius behind the business and Mark is the pragmatic one.” LET’S TALK...BUSINESS Page 3
THE HIDDEN VALUE OF AN AUDIT
By Jeremiah Thum Director POWERS AUDITORS
“Success is not final; failure is not fatal: It is the courage to continue that counts.” -Winston S. Churchill Australia’s business confidence has struggled throughout the past 12 months. However, this time of low confidence does have some positive aspects, as business owners are now rethinking about investing and growing their own business in the next 12 months. In order to grow your business, it is vital to have an established organisational structure, appropriate Risk Management Policies and Procedures as well as a competent management team to run the business on a daily basis. While expectations for good Corporate Governance are clearly understood and upheld through strong regulatory oversight, the role of governance within the small to medium sized enterprises (SMEs) is less clear. In a growing economy such as in Australia, it is important that certain checks and balances remain in place, so that the growing business will have established good management policies as they become economically significant. Auditing standards require close examination of an entity and its environment, including the entity’s control environment and internal control. Auditors are required to assess how management identifies and mitigates risk as part of the Audit Risk Assessment. The annual audit for an SME provides the opportunity for an owner-manager to receive an external “health check” on the reliability of the financial information it uses for decision-making purposes, including the way transactions are captured, measured, recorded and evaluated, by comparison to recognised reporting frameworks. As smaller businesses rarely employ internal experts, external audits are often cost-effective triggers for identifying where expert advice might be needed. Consequently, the external audit has an important role as a business grows and responds to the increasing level of interest from external stakeholders in an entity’s financial position. A regulatory approach which promotes external audit not only reduces the risk of business failure, it also equips smaller businesses with an understanding of how to develop management practices that enable them to grasp opportunities while mitigating risk. These skills are LET’S TALK...BUSINESS Page 4
essential for continued growth and prosperity in a vibrant SME market. Australian businesses are geographically placed in the midst of the developing, fast growing economies of the Asia-Pacific region. Local businesses of all sizes, including SMEs, are grasping opportunities for trade within the region. While Auditors cannot be expected to have the skills needed to advise on international trade regulations, their broader business experience will enable matters to be brought to the attention of management for follow up action on a timely basis. In contrast to SMEs in established Western economies, Australian SMEs have exceptional opportunities to share in the predicted economic prosperity of the region. However, regulatory oversight over business activity in these developing economies is still being established and consequently the exceptional opportunities may also bring unprecedented risks. Australian SMEs should anticipate and prepare for these opportunities from a foundation of strong business practices. External audit will provide a robust structure for matters to be identified and resolved before the scale of operations and associated business risk increase significantly. Typically in SMEs, owners are involved in the daily management of the business. Consequently, during the course of an audit, there is opportunity for frequent and open communication between the Auditors and the owner/ managers. This means that the Auditors become aware of matters of significance to the owner/managers and many issues otherwise outside the scope of the audit are often brought in to be examined within the scope of the audit. Examples include controls over payroll, superannuation contributions, indirect taxes and comments on efficiency and effectiveness of business practices. Imagine the possibilities that you could unlock once the right systems and processes are in place so that when the time is right, you as the owners of the business, will be able to concentrate on growing the business instead of worrying about the daily business operations. Start the conversation with Jeremiah Thum today.
LEADING THE LINE: CONTINUAL IMPROVEMENT
By Nick Pollins Director POWERS CORPORATE SOLUTIONS
“Continuous Improvement is better than delayed perfection.” - Mark Twain When in a position of leadership, your role is not only about making sure things proceed as normal. A truly great leader goes beyond maintaining the status quo and focuses on continual improvement in the workplace. Continuous improvement involves small steps for gradual progress. These add up to compounded productivity improvement. A key benefit is that improvements based on small steps, rather than radical changes, are less likely to require major capital investment. Also, because the ideas come from the Team themselves, there are likely to be fewer challenges with implementation. Instilling continuous improvement requires a cultural change for leaders and their Teams. Leaders may need training to help them change their behaviour if they are to advocate FOR continuous improvement in the workplace. However, when continuous improvement becomes integral to the way that leaders and Teams operate, it can drive an organisation to achieve its strategic goals. Here are five actions to help leaders create a culture of continuous improvement: 1. Respect People and Reward The culture of continuous improvement is a balanced culture between the company and its people. The company relies heavily on the people to problem solve, stop defects and fix processes, while the people rely on the company for job security and a safe work environment. The company earns hard benefits like improved customer satisfaction, improved quality, improved yields and profit. On the other hand, aside from wages, people earn more soft benefits that they may not see right-away such as improved skills, career development, job security and a safe work environment. Thus, it is often a successful approach to reward hard benefits to the people like luncheons, cash, or even something as simple as a public recognition of specific improvements. Treat people as internal customers and get their opinion on what they might like to receive for improvements and proactive problem solving. Recognise Team member contributions – no matter how big or small they may be. 2. Keep Communication Channels Wide Open There should be open communication regarding your systems and processes. As a leader, it is important to
ensure that any stakeholders in your organisation can understand what steps you are taking towards continual improvement. It is a good idea to keep all Team members regularly updated about changes and new approaches. This allows everyone to be on the same page, unifying the organisation and providing an opportunity for discussion. 3. Prioritise Outcomes Through a continuous improvement process, Teams can generate many ideas and if these are not prioritised, it can result in an unwieldy amount of projects that may not benefit the business. Leaders need to link the work of the Team to business goals, by being decisive and clear in prioritising which projects will deliver the greatest value. 4. Help Individuals Be Their Best A business or organisation is only as strong as its weakest member. It is imperative to develop effective mentoring and coaching processes for your Team. This helps individuals to grow in their career and to expand their influence and personal success in your organisation. On a wider level, these coaching processes ensure that individuals and Teams are able to implement and support the organisation’s plans for continuous improvement. 5. Regularly Assess Insights One of the best ways to continually improve systems and processes is to use knowledge management systems to provide valuable insights and assessments. However, leaders should not just consider the data results from a continuous improvement initiative. Leaders should also conduct a debrief to examine how the Team achieved the outcomes and whether any lessons or principles can be learned and transferred to the next situation. These five actions underpin continuous improvement. However, to effectively support this improvement culture - and to inspire confidence in others - leaders will need to be credible. They should adopt a consistent framework and approach to situations; one which they are willing to explain. They should demonstrate fair and consistent standards in the way that they treat people and they also need to be authentic in their leadership style and genuine in their support for their Team. If you want to embrace Continuous Improvement in your business, speak to Nick Pollins today. LET’S TALK...BUSINESS Page 5
HIGHLY EFFECTIVE FARMERS
by Martin Pentecost Director POWERS AGRIBUSINESS & FINANCE
Successful primary producers are first and foremost good business people. However, we can always be better Managers. With increasing volatility of costs and prices, there are options of risk management tools to help producers succeed. Here are some tips to help with management and making better business decisions. 1. Match Up Costs With Revenues Too many producers treat costs and earnings as separate issues. Focus on managing the margin between costs and revenue by looking a few months ahead and locking in the price of future inputs such as fertilizer as well as locking in a price for products you will sell. Purchasing market options may let you capture a profit and still benefit from future price changes. 2. Play “What If?” Do not limit yourself to considering “most-likely” outcomes. Plan for the worst. Start with the four Ds: death, divorce, disability, departure. E.g. Farmers who operate in areas that are likely to experience hail may purchase hail insurance without considering other factors like increased drought conditions. The potential impact from drought could supersede any other weather-related events. What if this year’s crop does not come up? Hail insurance does not cover crops that fail to emerge. In these situations, farmers should consider crop revenue insurance. You might hate the premium, but look at what could go wrong and ask yourself if you can afford it. 3. Stay On Top Of Your Business Successful managers monitor and analyse their performance. They are more likely to spot problems and opportunities before it is too late. Business problems are like cancer — they eat away at profits. However, if you spot them early, they are often treatable. If you know there is going to be a problem, there will not be a problem. E.g. Many producers take last year’s cash-flow budget and adjust it for next year. However, the forecast you developed at the beginning of the year does not include things that actually happened. Check projections each month against current cash flow. If this month proves worse than projected, you may need to adjust your expenditures. 4. Establish Priorities — The 80:20 Rule The 80:20 rule says that 80% of what we accomplish LET’S TALK...BUSINESS Page 6
should be produced by 20% of what we do. Most people never accomplish their goals because they focus on what they know how to do, what they like to do, what’s easiest and what’s urgent. However, sometimes it best to delegate the simpler tasks. E.g. Is your time better spent straining up fence wires or spending that time in the office working through your business cash flows and budgets. 5. Conduct Autopsies Evaluate key decisions to avoid repeating mistakes. What went well and what went poorly? What did you overlook and which assumptions led you wrong? What did you learn? Agricultural Economist, Danny Klinefelter, gives a good dairy farm example. “Many producers milk Holsteins, because they generate the highest production,” he says. “I know a producer who examined his records and switched to a three-way cross. Milk production dropped, but his crosses take less feed, produce longer and produce milk with the same quantity of fat and protein components.” 6. Do Little Things Better — The 5% Rule Studies show that the most sustained success comes from doing 20 things 5% better, rather than doing one thing 100% better. The most profitable producers tend to be only about 5% better than average farmers in terms of costs, production or marketing. 7. Analyse What To Stop Doing Successful managers spend as much time analysing what they need to stop doing as they do evaluating new opportunities. Such analysis can lead to shedding assets, enterprises, people, land leases or unnecessary practices. E.g. A farm that is producing grain, sorghum and cotton, with only marginal profitability may generate better profits buying calves and putting them on winter oats and selling them each spring. It may pay to share-farm the cultivation and focus on what you do best. Adopted from 12 Best practices of Highly Effective Farmers, Farm Credit Newsletter “Landscapes”
To ensure your farm is being managed effectively, speak with Martin Pentecost today.
SELLING YOUR BUSINESS
by Brett Plant Director POWERS ACCOUNTANTS & ADVISORS
It’s all about timing... The “baby boomer” wave to retirement has been talked about for many years. It was expected that the transition would start spiking as the group starting turning 50, then 60, now 70… Due to many factors there is currently a pentup supply of business owners willing to sell their business waiting for the right conditions. During discussions with people about selling their businesses, the response is often, “It is not the right time”. So what does it mean to be the wrong time: • There has been a shortage of “successors” willing to step up • As a result of the GFC, individuals have had less capital and are more cautious • The best time to sell a business is when it is growing and has strong growth prospects, this has not been the case for most businesses for some time • Many businesses are not structured to make themselves attractive for a sale or investment Consequently, the outcome when it is the wrong time to sell, is that most business people enjoy what they do and are happy to continue. As conditions improve in a sector, there will likely be a rush of ownership transfers as people take the opportunity to retire, given the improved conditions. Agribusiness – The Right Time Currently, agribusiness is a sector that offers many of the right conditions to transfer ownership. • Investors are looking to invest in Agribusiness. No, it is not that Australian Superfunds have had a change of heart, it is mostly offshore investors including the North American pension funds and Asian investors looking for feed stock for their food products. • Farmers who have had enough rain are generally
experiencing a buoyant market, combined with a low Australian dollar. • There is a willingness to entertain different structures with the sale and rent model becoming more prevalent. This offers an investor limited exposure to the operational farming risk while giving them the upside of capital growth in the “scarce” land and water. This type of transaction can also offer a succession structure where the next generation can be the tenant and operator requiring limited capital. • There are positive macro drivers with the emerging middle class in Asia, right on our door step and Australia having very high food quality and standards. Sale or Investment Ready There are a few key elements to being investment or sale ready: • Good records (including a financial consolidation of the farming operations) are important when either looking for investment or a sale. These records could extend to operational records such as paddock records and farm plans. • Be clear on the value of the operation and if you are looking for an investment, have a plan on how you are going to build value or grow the business. • Be clear on the structure of the sale or investment, which entities are selling what and any retained assets such as the home block. • Understand the Tax issues with the sale and any key thresholds, such as the Capital Gains Tax small business concessions. The last word is: do not wait too long, the key to business is timing. You do not want to be too close to the peak and risk the market cooling off and the capital moving on to the next sector. If you think it might be time to sell your business, speak to Brett Plant today.
Tell Us How We Are Doing Your feedback is very important to us. If you have any compliments, complaints, or suggestions about our service or team, please contact our Marketing Coordinator, Beccy Congram, on 07 3906 2888. We are always interested in improving our services and value what you have to say. LET’S TALK...BUSINESS Page 7
Let’s Talk Powers
Pictures from our Recent Events
Top Row: The Biloela Christmas Festival, sponsored by Powers, on Saturday 28 November 2015; The Brisbane Team watching The Race That Stops the Nation; Biloela’s Welcoming Receptionists Thinking Pink. Bottom Row: The Biloela Team then Brisbane Team celebrating Hat Day for Mental Health Research; The Brisbane Team Thinking Pink for Breast Cancer Awareness.
Team Announcements This quarter, we welcomed to the Team: Brett Plant, Director; Chaturi Fernando, Receptionist; Clare Telfer, Accountant; Darren Bonney, Business Services Manager; Dilanthi Silva, Graphic Designer; Gihan Perera, Superannuation Accountant; Liomi Siriwardane, Assistant Manager; Lisa Post, Graduate Accountant; Malith Prasad, Senior Accountant; and Muznath Ahamed, Superannuation Accountant. We are excited to have such great people joining our Team. Our family is growing as well! Belated congratulations to Renaldi Steyn and her partner on the birth of their baby girl. Love Is In The Air We are delighted to announce that Dan McMillan and Estelle Schluter recently announced their engagement. Congratulations also goes to Toni Neilsen who recently announced her engagement to Brodie Dingle. We wish both couples many years of happiness. Special Anniversary Managing Director Ian Congram recently celebrated his 25th Powers anniversary, which is an amazing achievement; the company has come a long way under his leadership. Congratulations, Ian!
Contact us BRISBANE 10/8 Metroplex Avenue Murarrie QLD 4172 PO Box 518 Cannon Hill QLD 4170 Ph 07 3906 2888 Fax 07 3906 2889
Community Engagements Powers have been active in the community, contributing to a number of events and causes. In particular, we are proud to announce: • Our Drought Campaign raised $1,506.60 for the Buy A Bale Foundation, helping farmers facing drought to survive • We enjoyed an evening at Paradise Lagoons for the Black Dog Ball in October, showing support for the importance of mental health in rural Australia • Our Think Pink Morning Tea raised $137.45 for Breast Cancer Awareness month! • Craig Wilkes and Brandon Black raised funds and sacrificed shaving for Movember, raising awareness of men’s health issues • Hat Day for Mental Health Research meant some of the Team looked a bit silly at morning tea for a good cause • The Gateway Business Hub is growing; during our recent meeting, our Super Man, Charles Page, taught everyone how to future-proof their Superannuation • Our Leaders in Agribusiness event at Cloudland was a success as we reviewed the year gone and prepared ourselves for a momentous year ahead • We were glad to support Biloela Enterprise Inc in their promotion and hosting of the Biloela Christmas Festival.
For further information on any of the articles in this issue, please contact your local office: ROCKHAMPTON 75 High Street North Rockhampton QLD 4701 PO Box 5161 Red Hill QLD 4701 Ph 07 4928 1555 Fax 07 4926 1184
BILOELA 54 Callide Street Biloela QLD 4715 PO Box 98 Biloela QLD 4715 Ph 07 4995 6677 Fax 07 4992 1787
MONTO 3 Newton Street Monto QLD 4630 PO Box 69 Monto QLD 4630 Ph 07 4166 1366 Fax 07 4166 1343
www.powers.net.au mail@powers.net.au Visiting Mundubbera and other locations by appointment
The information in this document is of a general nature and is provided for information purposes only. It does not take into account your particular objectives, financial situation or needs and should not be used as a substitute for independent advice from a qualified professional. Limited liability by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. All financial advice is provided by Authorised Representatives of Professional Investment Services Pty Ltd AFSL 234951 ABN 11 074 608 558.