SEPTEMBER 2015 Issue
CHARTING A COURSE THROUGH S T O R M Y WAT E R S
“It’s fine to celebrate success but it is more important to heed the lessons of failure.” Bill Gates.
Also inside this issue
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• Client Spotlight: Rabco Plant Hire • Client Opportunity: USA Tour
• Surviving Downturns
• Diversifying Investments
•F armers’ Resilience • Drought Fundraising Appeal
• Employee v Contractor
• Owning Failure To Succeed
• Let’s Talk Powers
SURVIVING DOWNTURNS
by Ian Congram Managing Director POWERS ACCOUNTANTS & ADVISORS
“When fishermen cannot go to sea, they mend their nets” - Anonymous The ability of a business to react quickly and continue operating during a downturn is vital to its survival and reputation. In a downturn, the biggest risk a business faces is the temptation to succumb to economic pressures and abandon ship. The moment a business moves away from the path set, it becomes almost impossible to regain lost ground. Here are a few tips on surviving and thriving the downturn storm: 1. Great businesses are in it for the long haul, so a downturn is just a bump in the road The larger the business goal, the more time is needed to invest in it. Just as the best-matured wines carry a price premium or the best-structured investment portfolios earn the most compounded value, so too does a business need a long-range perspective to prosper. Focus on investing in the business rather than seeking options to divest or exit altogether, because the downturn mood is everywhere. 2. Great businesses provide outstanding customer service Offering outstanding customer service is vital during a downturn. Ensure your customers know they are valued. Asking for testimonials and referrals from existing customers is one of the most effective ways to generate leads in a downturn. Talk to customers and ask them where they see the most value in your services. Employees have to understand that without customers, there is no revenue and without revenue they will not have a job. This message will have to be repeated many times before it really sinks in, so regular communication to the employees on the value of customers is critical. 3. Great businesses make room for new growth by “de-cluttering” that which is marginal or ineffective During times of growth and expansion, it is easy to get hooked into over-spending, “over-doing” and overconfidence. All too often, businesses go unconscious about important basics and become oblivious to “waste”. Great businesses take advantage of down times to declutter “excesses” – i.e., any drains on time, money or LET’S TALK...BUSINESS Page 2
people resources generating little or no return they scale back to what they do best in order to be at their best. They make room for new growth and profits. 4. Great businesses aggressively position themselves ahead of the competition During economic downturns, great businesses do not go on the defensive, cutting back costs, downsizing marketing efforts and commoditising products and services to survive. Instead, they position themselves to win by ramping up promotions, accelerating new product introductions and keeping a visible profile. By taking advantage of the emerging opportunities, they not only differentiate themselves during the downturn, they also position themselves for explosive growth after its turnaround. 5. Great businesses find the elusive balance The businesses most likely to outperform their competitors after a downturn are pragmatic. The CEOs of pragmatic businesses recognise that cost cutting is necessary to survive a recession, that investment is equally essential to spur growth and that they must manage both at the same time if their businesses are to emerge as leaders. Progressive enterprises are most likely to be downturn winners. These businesses’ defensive moves are selective, cutting costs mainly by improving operational efficiency rather than by slashing the number of employees. However, their offensive moves are comprehensive, developing new business opportunities by making greater investments than their rivals do in R&D, marketing and assets such as plant and machinery. It is important to understand why the businesses that use this combination do so well after a recession. Whether a business survives or thrives during a downturn is largely within their control. They control how they perceive it, how they respond to it and how they learn and grow from it. If seen in the right light, an economic downturn can be a blessing in disguise. Those businesses that do this will survive and prosper. Speak to your Powers Advisor today about surviving the downturn storm.
FARMERS’ RESILIENCE
by Martin Pentecost Agribusiness and Finance Consultant POWERS AGRIBUSINESS & FINANCE
“Inside of a ring or out, ain’t nothing wrong with going down. It’s staying down that’s wrong.” - Muhammad Ali Our ability to adapt and bounce back when things do not go as planned is known as resilience. Only by acknowledging, rather than dwelling on mistakes and failures, does a resilient person move forward.
3. They Build Flexibility into the farm business. When a disruption occurs, a non-standard approach can be readily used. Flexibility can be acquired at a cost, often relatively low, by deliberately building redundancy into the system.
4. They have Excellent Networks of Communication. They have lots of rich, mutually-supportive and trustful relationships with fellow farmers, suppliers, service providers and their family and employees with good information flows. People in the networks with needed expertise and information about adapting to climate change are highly regarded. As a result, when an opportunity arises to adopt a new practice, the farmer has ready access to So what makes a resilient primary producer different and information for an informed decision. gives them the ability to cope? Resilience can be developed not only from a psychological perspective but also from a 5. They Experiment and Innovate, doing small-scale business management approach. A series of recent case experiments all the time that help in adapting to change in studies suggested the following characteristics for more the future. E.g. they do experiments with new varieties of resilient farm businesses: drought tolerant cereals or, to take opportunistic advantage of potentially increasing summer rains, with summer1. They Constantly Scan Their Environment for relevant growing crops, researching which variety will work in their changes, trends, emerging opportunities and threats. setting. This includes business issues (prices, costs, demand shifts, supply chain issues); natural environmental issues 6. They All Know and Share Goals and Values, taking (weather and climate, biodiversity, invasive species, the time to build mutual understanding about the explicit soil health, salinity); social issues (community attitudes goals and values used in the farming business. Employees towards animal welfare, organic or “green” products, and junior family members add to creativity and flexibility desire for local products); and regulatory issues (effects in dealing with a crisis, because they are engaged and of international regulatory changes). Resilient farmers motivated. are aware of changes in and the variability of their local climate. In order to achieve the required resilience, investments are required, to: build infrastructure; undertake planning; 2. They Prepare for Potential Disruptions, making provide excess resources; and develop social capital. contingency plans to cope with realistic, if unlikely, scenarios. Late season breaks challenge the growth Imagine what would have happened if Muhammad Ali potential of annual pastures and hence the carrying stayed down. Imagine what you could accomplish if you capacity of grazing enterprises. A contingency plan would have the strength to get up again. envisage selling or agisting stock upon certain triggerlevel shortfalls of rain when certain predefined dates are Start the conversation with Martin Pentecost today. reached. It seems today that farming families are under increasing pressure on farm sustainability due to the impact of severe weather events such as drought or flood. It is often the case that the only training farmers have relates to efficiently and effectively running a farm. When disaster strikes, losing a farm is not only a financial loss, it is a loss of identity.
Help Australian Farmers: Donate to Powers’ Buy-A-Bale Fundraiser
Times are tough for Australian farmers facing drought and we want to help! Powers are running a fundraising drive with Buy A Bale, an Australian charity that coordinates donations to provide farming families with the basics they need to survive during tough times. 1 hay bale = $20 donation. Our goal is to raise $1,000! To make a difference to Australian farmers, donate today at www.buyabale.com.au/donate?supporter_id=29 References: Gray, D. M. Western Australian Farm Businesses Build Resilience. Department Agriculture and Food, Western Australia. | Smith, C. 2015. Developing Resilience : Overcoming and Growing from Setbacks.
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OWNING FAILURE TO SUCCEED
By Nick Pollins Director POWERS BUSINESS ADVISORY
“It is hard to fail, but it is worse never to have tried to succeed.” - Theodore Roosevelt To many in our success-driven society, failure is not just considered a non-option — it is deemed a deficiency. However, the wisdom of learning from failure is incontrovertible. The most valuable part of any failure is the ability to learn from it. Without that saving grace, we are left with nothing but the consequences of fixing what went wrong while the likelihood of repeating it is increased. Why are so many business owners misguided in their belief that failure is always bad but they see learning from failure as being easy? In business life, failure is sometimes bad, sometimes inevitable and sometimes even good. In today’s postrecession economy, some employers are no longer shying away from failure — they are embracing it. The prevailing school of thought in progressive companies, such as Intuit, Apple and Virgin Atlantic, is that great success depends on great risk and failure is simply a common by-product. Leaders of such businesses don’t mourn their mistakes; instead, they parlay them into future gains. Learning from business failures is anything but straightforward. The attitudes and activities required to effectively detect and analyse failures are in short supply in most companies and the need for context-specific learning strategies is underappreciated. Businesses need new and better ways to go beyond lessons that are superficial (“Our Systems weren’t followed”) or self-serving (“The market just wasn’t ready for our great idea”). That means leaving old cultural beliefs and stereotypical notions of success behind and embracing failure’s lessons. So what can you do to turn failure into success? Own your failure While willing your business into existence, you will stumble across the way and those that follow you will struggle as well. Take ownership of your part in failure. If you make excuses for yourself or blame others, no good can come of the concerning situation. Forgive yourself For many of us, this is the hardest part. It helps to acknowledge that failure is a part of the human experience and that you can grow from it. It also helps to have others to relate to. LET’S TALK...BUSINESS Page 4
Apologise authentically As part of owning your failure, be authentic to those you may have wronged. There is nothing more infuriating for your customers than the corporate, “We apologise for any inconvenience.” As an example, if your email service went down, it would be better to hear, “We know emails are critical to your business and we feel terrible for the disruption. We will update you as soon as we resolve the issue to get you back up and running.” Always acknowledge the problem and stress you understand the importance of having it solved. It is always darkest just before dawn If you have been knocked down in life before, then you know that our biggest successes come not from avoiding catastrophe, but instead by facing obstacles head-on, falling down every now and again, getting back up and dusting yourself off to continue the fight. If there were not any challenges on the road to success, it would be easy and everybody would get what they want. What fun would that be? Perform a transparent debriefing One might call this a post mortem. We need to stop using this term. Unless you are in the healthcare business, it is unlikely anyone died as a result of your failure. In accounting, we use the term “debrief” when we refer to a meeting where we look back at what went well and what went wrong in the management of failure. Involve all stakeholders in this process and be transparent in sharing what you have learned with your employees and your customers. Teach others We have a saying at Powers, “to teach is to learn.” Take the insight you have gleaned and share your tribulations. It will benefit others in that they can learn from your experience and it will provide you with closure. As entrepreneurs, our businesses move too quickly to dwell on failure. Use this framework as a means to learn and move on, having benefited from the experience. Let’s be clear; failing is not fatal. Speak to your Powers Advisor today about how to succeed against the odds.
CLIENT SPOTLIGHT RABCO PLANT HIRE Wayne Rabbitts is the owner/manager of Gladstone based Earth Moving and Plant Hire company, “Rabco Plant Hire”. Starting out as owner-operator with one piece of plant, Rabbitts’ business has grown to over 80 pieces, employing over 50 local people. In that time, Rabco has diversified and now offers wet hire, dry hire, bulk haulage, general freight, concrete recycling, civil contracts and more. Wayne and his partner Tracey have also taken over a small nursery on the outskirts of Gladstone, “The Beecher Nursery”. They have also started a semi-trailer rental company, “Gladstone Trailer Rentals”, which has a range of trailers including: flat tops, skels, expendables, step decks, tag alongs, side tippers, dollys, etc.
if they were capable of branching into a new area of Log Haulage. The contractors were impressed with what Rabco had to offer, including the safety and attention to detail as well as a high standard of equipment, not to mention the positive attitude of the staff. Wayne and Tracey were successful in winning a minimum 12 months contract carting timber from Byfield to Gladstone 24 hours a day, five days a week and are the only local contractor involved. It has been a big learning curve and they have received positive feedback from their clients. They are now exploring the possibility of another two year log cartage contract – a reflection of their high quality work, as they are new to the industry yet maintain a competitive edge.
The key to Wayne and Tracey’s success to date has been the ability to be flexible and offer a broad, diverse range of plant, equipment and personnel with a can-do attitude. They resiliently continue to explore opportunities to keep the momentum rolling in this tough economy. One opportunity they seized was recovering the Byfield Pine Plantation, which was destroyed during Cyclone Marcia.
Mr Rabbitts would like to personally thank the Rockhampton Team at Powers for seeing the potential of the business and for supporting their continued growth, even through quiet times. “To have such professional support at your side that can explain things clearly is a huge help and does not go unnoticed. Vickie White has been vital to me and it’s comforting to know help is only one phone call away”.
Byfield Pine Plantation head contractors visited Rabco’s yard in Gladstone to get a feel for the company to assess
To learn about Rabco Plant Hire, give them a call on 07 4978 7222 or visit www.rabcoplanthire.com.au.
EXCLUSIVE CLIENT OPPORTUNITY: Powers presents: Houston Livestock Show Study Tour March 2016 Be a part of a first for Powers! Would you like to see and experience the largest Livestock Show in the world and visit state-of-the-art cattle and farming enterprises in Texas, USA? Let us know! Powers are putting together a 12 day Study Tour from 1 March 2016 – 13 March 2016 to the Houston (Texas) Livestock Show for 25 people. We will be securing group booking rates and the expenses incurred may equate to a tax deduction. We would love to hear from you if you would like to secure a place on the Tour. More information will be released at the end of October and numbers and bookings will need to be confirmed by 5pm Monday 30 November 2015. For more information please contact Martin Pentecost (martin.pentecost@powers.net.au) 07 4928 1555 or Ingrid Maddox (imaddox@powers.net.au) 07 4995 6655. LET’S TALK...BUSINESS Page 5
DIVERSIFYING INVESTMENTS
By Marc McMahon Director POWERS WEALTH
“An investment in knowledge pays the best interest” - Benjamin Franklin Diversification is a key investment strategy used to manage investment risk and price volatility within a portfolio whilst still providing an appropriate level of return. However, the goal of diversification is not to boost performance. It will not ensure gains or guarantee against losses, although it can help set the appropriate level of risk for an investor’s time horizon, financial goals and tolerance for portfolio volatility. To diversify an investment portfolio means to invest in a variety of assets and investments that perform differently to each other over time. It is often described by the phrase, “don’t put all your eggs in one basket”. You can diversify your portfolio in different ways. Examples of diversification include investing: • Across a range of asset classes including ‘growth assets’ like shares and property and ‘defensive’ assets like fixed interest (bonds) and cash • Across different countries and regions such as Australian and International Assets, Asia and Emerging Markets • Across different securities that provide you access to a range of companies and sectors The Value of Diversification Diversification allows you to participate in the growth and performance of financial markets while reducing risk in your portfolio by moderating the ups and downs in returns over time. This means that you avoid taking big bets in one asset class and/or a few investments that may adversely affect your returns if that asset class or investment performs badly. Diversification avoids having your investment fortunes tied to the performance of a small number of securities or assets. It also allows you to have an exposure to a spread of assets and securities and different strategies including both ‘growth’ and ‘defensive’ assets. In essence, diversification provides a greater chance that your portfolio will experience smoother returns LET’S TALK...BUSINESS Page 6
over time, by minimising the effects of volatile markets where possible, particularly over shorter periods. How Diversification Works The key to diversification is to invest in assets that have different characteristics and perform differently in varying market conditions. That is, assets which move in different directions as financial conditions and markets change. History has shown that no one asset class has consistently out-performed year after year. The worst performing asset class one year may be the best performing the following year. E.g. In 2011 Australian equities were one of the worst performing asset classes but the following year (in 2012) it was the second best performing asset class. This shows the risks of assuming that last year’s winners/losers will again be this year’s winners/losers and investing based on that theory. It also demonstrates the value of diversification. Effectiveness of Diversification Diversification can reduce the risk in your portfolio but it will not eliminate the risks. Your portfolio is still likely to experience ups and downs in returns over time, with a lower level of variability. Your portfolio may have exposure to specific investments that perform poorly at times and you are unlikely to avoid investing in poor performing investments. When reviewing the effectiveness of diversification you should consider the performance of your total portfolio. The benefits of diversification will vary over different time periods. Historically, in some periods when the broad financial markets decline, the effectiveness of diversification has reduced. Diversification should therefore be measured over medium to long term periods. To ensure that your investments are secure, contact Powers Wealth today on 07 4995 6677.
EMPLOYEE V CONTRACTOR
by John Cox Senior Consultant POWERS ACCOUNTANTS & ADVISORS
When times are tough, it is often a temptation to reduce your workforce and consider alternatives such as Contractors. However, it is important to take all factors into consideration before making such a decision, as falsely contracted/employed workers can have negative effects on your business. What are the benefits and costs of this exercise? Contractors are “results based”: you pay for what you get. Work defects fall back to the Contractor and you only use the Contractor when you need them. Cost savings may include: reduced superannuation commitments, Workcover, holiday pay and penalty rates. Downsides may include lack of control and timing of work (having Employees immediately available can be an advantage), higher cost (in dollars per hour terms), although you do not have to pay for down time. When considering outsourcing, know the differences, as if you get it wrong you may still face the costs of superannuation, Workcover and payroll tax, particularly if contracts are predominantly labour only. What is the difference between an Employee and a Contractor? A Contractor is someone who runs their own business and provides services to your business. An Employee, on the other hand, works in and is part of your business. Some people believe that a worker is a Contractor just because: they have an ABN; you only need them for a short period of time or to help out during busy periods; they have a written contract stating they are a Contractor; or you need a worker with specialist skills or knowledge. None of these things will make the worker a Contractor if they really are an Employee. So what does make a person a Contractor? There is no one single thing - the whole relationship needs to be considered. Contractors run their own businesses, take commercial risks, are part of the business tax system and need to keep proper business records. Contractors are often contracted to achieve a specific result. To correctly work out whether a worker is an Employee or Contractor you need to consider six factors:
1. Delegation An Employee cannot sub-contract/delegate the work if their arrangement requires them to personally perform the work. They can organise for another person to do it and your business pays the other person - this is substitution, not delegation. A Contractor can sub-contract/delegate the work if they are contractually not required to perform the work personally and can pay another person to do the work. 2. Basis of Payment An Employee may be paid on an Award rate or for the hours worked. They may also be paid on a “piece rate” for items produced. Commissions are also considered a price per item activity. A Contractor will price for an outcome. 3. Equipment, Tools and Other Assets This factor is about who is responsible for providing the equipment, tools and other assets (such as heavy machinery or motor vehicles) needed to perform work. 4. Commercial Risks An Employee does not take commercial risks when your business bears the legal risk for the work and is responsible for defects in the work performed by the worker. A Contractor bears the legal risk for the work and is responsible for defects in their work. 5. Control Over Work An Employee is subject to control by the business in the way the work is done. A Contractor can decide the way the work is done and is free to exercise their discretion in completing the work (subject to Terms and Conditions). 6. Independence An Employee is not considered to be operating independently from your business. A Contractor is operating independently from your business. The Contractor performs services as specified in their Contract or Agreement and is free to accept additional work. Employees and Contractors may each have their place in your business, but an Employee can rarely change his spots to become a Contractor overnight without a complete revision of the services and outcomes required. Talk to your Powers Accountant when making these changes to ensure you and your staff are protected. LET’S TALK...BUSINESS Page 7
Let’s Talk Powers
Pictures from our Recent Events
Top row (left to right): Jenette Penney, Colin Kerle and Geoff Arnold (Powers) at the Lindana Open Day; Rebecca Hutson, Martin Pentecost (Powers) and Scott Hutson at Lindana Open Day; Madonna Leneham and Beccy Congram at Powers’ Stall, QRRRWN State Conference; Women Inspiring Women at the QRRRWN State Conference; Prize Winner, Trisha Draper and Ingrid Maddox (Powers) at the Beef Cattle Judging, Moura Coal & Country Festival. Bottom row: The Powers Team at the Annual Corporate Retreat.
Powers’ Event Calendar • Powers were surrounded by strong, inspirational women when we proudly sponsored the Queensland Rural Regional Remote Women’s Network State Conference in Biloela this September • Powers took pride in presenting prizes to winners of the Beef Cattle Judging at Moura Coal and Country Festival • The Lindana Open Day was a great success, as Bazadais studs were showcased and Martin Pentecost presented a seminar about the changing cattle market • A number of Clarke Creek Camp Drafts kept the Team busy in the past quarter, making valuable connections while serving cold beers • As part of our sponsorship, Powers will be attending the Black Dog Ball at Paradise Lagoons on Saturday 10 October 2015, showing support for the important issue of mental health in rural Australia 300+ Facebook Likes Thanks to those who have helped us reach 300+ Likes on our Facebook page. Facebook is a great way for you to keep up with Powers News and important financial updates, so Like us here: www.facebook.com/powersfinancialgroup
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
New Team Members Our Team is expanding! This quarter, we welcome to the Team: Craig Wilkes, a Manager supporting Geoff Arnold and Paul Chalmers’ Teams; Ian McGinniss, a Senior Manager supporting Vickie White’s Team in Rockhampton; Hana Gibson, a Supervisor supporting John Cox’s Team; Steph Young, a Supervisor supporting the Rockhampton Team; Angela Martin, an Accountant joining the Superannuation Team; Aaron Dickenson, a Graduate Accountant joining the Rockhampton Team; and Jordon Kelly, Brisbane’s new Office Assistant. Our family is expanding as well! Congratulations to Leon Kotelnikov, Kelly Conder and Craig Wilkes and their respective partners for bringing three new babies into the world. Annual Corporate Retreat Hervey Bay did not know what had hit it (aside from the earthquake tremors) when Powers came to town from 31 July 2015 – 2 August 2015 for our fourth Annual Corporate Retreat. The weekend was devoted to Client Service, though we managed to squeeze in a few games along the way. A successful weekend for all involved.
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.