April/May 2020 - BAY OF PLENTY BUSINESS NEWS

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18 BAY OF PLENTY BUSINESS NEWS April/May 2020 Be scared – or be prepared CREDIT CONTROL > BY NICK KERR Nick Kerr is Area Manager BOP for EC Credit Control NZ Ltd. He is also a director of International Private Investigations Ltd. Nick can be reached at nick.kerr@eccreditcontrol.co.nz Billy Connolly once said “there is no such thing as bad weather, only a bad choice of clothes”. While that’s a typical Connolly quip, I think it rings true in a lot of situations, including what we are going through as an economy and a society at the moment. To get through any tough period in business it is important to adapt in order to lessen the possible impacts of the challenges faced, by anticipating probable issues and putting in plans to avoid or at least reduce loss. In order to do the above, we need to analyse historically similar situations and what the outcomes were. With a worldwide health scare, there are some pretty clear behaviour patterns. There is a massive surge in panic buying in the retail sector, and a downturn or flatline in events and tourism-based business. That tends to be followed by a downturn in retail and business to consumer and business to business direct sales and service businesses across the board when contact restrictions are imposed. Another major issue faced by businesses are staff shortages, which fall into several categories. You have the genuinely ill and their family members, the at-risk employee who must isolate due to immune deficiencies, the fearful isolators, and the advantage takers. Many businesses can utilise technological advances to mitigate the effects that the shortages in on-premises staff can have. Staff sales and consulting meetings can be held over video conferencing applications, account management, accounts and administration activities can be completed remotely from home using cloud based systems and mobile phones. But there will be some who may find it very hard or maybe impossible to get through without some major help at both a local and governmental level, if any lengthy isolation period is imposed. And that is what is now being experienced in a number of other parts of the world. Credit control options From a credit management perspective there are a few things that businesses can do to give themselves the best level of cashflow possible throughout any period of economic downturn these include: • Deposits: There is no legal regulation that precludes or limits the ability to ask for With a worldwide health scare, there are some pretty clear behaviour patterns. There is a massive surge in panic buying in the retail sector, and a downturn or flatline in events and tourism-based business. That tends to be followed by a downturn in retail and business to consumer and business to business direct sales and service businesses across the board when contact restrictions are imposed. deposits for works to be done as long as they are fair and reasonable. A decent deposit gives you cashflow at the beginning and the end of any job or activity. If there is an increased risk that works will be postponed or suspended after they are started, then a decent deposit is essential to avoid outlay without income. If you have any doubts that a customer can pay, then ask for payment up front especially for bespoke or non-stock goods unless you have a contract that agrees that this is your right. • Payment Terms – Consumers do not need 20th of the following payment terms. Payment on completion or seven days at most is perfectly reasonable. Make this clear from the outset and no one gets surprised or offended. • Credit Limits – For on account clients, set and monitor credit limits. If payments are late then do not amplify your risk by increasing your credit limits. Someone’s ability to pay does not necessarily increase when the amount they need to pay does. Many eventually liquidated companies increase credit limits with suppliers in the months before liquidations. So use a credit monitoring service like Equifax or Centrix, which could provide a warning of a nasty surprise. • Secure – Place PPSR securities on all major accounts while they are all (to your knowledge ) solvent. If this ever changes (within the 5 year secured period) your rights of remedy are greatly increased. • Pre-Empt – No one minds a friendly gentle reminder especially if it appears automated. A text message saying something like “we look forward to receiving payment for Inv#12345 on Friday, 20 March, please remember to use Ref # 12345 for this payment. Thanks.” In times of stress, simple reminders can result in a marked decrease in late payments. • Act – If debtors are not communicating, time will not improve this. Send a warning letter, then escalate to collection action asap if communication and payment does not occur. Just a thought. Stay safe.
April/May 2020 BAY OF PLENTY BUSINESS NEWS 19 Three compelling reasons why franchisees should follow the system It should perhaps be obvious or assumed that when someone decides to buy or establish a franchised business that they will follow the system, after all that is what they have bought into. However, as human beings we have an engrained propensity to tinker, challenge and change just about everything. FRANCHISING > BY NATHAN BONNEY Nathan Bonney is a director of Iridium Partners. He can be reached at nathan@iridium.net.nz or 0275-393-022 With a caveat of saying no system is perfect and development and innovation should be encouraged and managed in a system, there are three compelling reasons why it is in the franchisee’s best interest to follow the system. 1. The system works Firstly, franchises are often referred to as franchise systems, and the hint is in the second word – system. A system is defined “a set of things working together as parts of a mechanism or an interconnecting network; or a set of principles or procedures according to which something is done; an organized scheme or method.” In a franchise the business product, process or service is delivered via a systemised approach. It is tested and based on the success of the system or process the franchise brand is able to develop and grow. It’s like baking a cake, you need to follow the recipe, use the right proportions and cook at the right temperature and for the right time. Once you have mastered this, you may be able to alter the recipe and or add but do this at the beginning and you have a mess. Holds true with a systemised business approach, miss a step, include too much of something and or alter the process and the results won’t be the same. 2. It provides the ability to measure and benchmark A systemised approach to operating a business provides for measuring, and the old cliché of what you cannot measure you cannot manage applies. The truly beautiful aspect of operating in a franchise business model is it provides independent business owners or operators – franchisees, the ability to measure or benchmark against and across similar businesses. The ability to benchmark between different locations, markets and operators is created by the fact they are operating under the same systemised approach. The Big Mac hamburger is sold by McDonald’s – the world’s largest chain of hamburger fast food restaurants. Following a franchise system is the only way independent business operators could possibly achieve meaningful benchmarking; industry surveys and statistics, trade associations and even (illegal) cartels cannot as they do not have the constant of an operating platform from which to compare, they are at best able to relate one or several measures. Disregard or operate outside the system parameters and the franchisees ability to benchmark and best manage their business is compromised. 3. It provides a truly competitive edge The most powerful motivator for a franchisee to follow the system is actually a combined result of having a process or system that works, and the ability to measure and benchmark with-in and across the system. This combined result is a truly competitive edge. Do the business better, measure it, compare, improve. Through this repeated cycle the franchise system and franchisee will probably gain market share and profitability along the way. That’s quite a compelling reason the follow the system. Back to my comment that no system is prefect but a good system will encourage innovation and change applying franchise system disciplines along the way. That’s how we got the Big Mac and McDonalds their best ever selling burger, and a great number of successful franchisees! Top 10 tips to keep your business running smoothly MONEY MATTERS > BY STEPHEN GRAHAM Stephen Graham is a Director and Managing Partner at BDO Rotorua, Chartered Accountants and Advisers. To find out more visit bdorotorua.co.nz or email rotorua@bdo.co.nz I am often surprised with new clients at how little they know about their business – even such simple facts as what their monthly overheads are – information that can mean the difference between success and failure. I tell these clients that staying up to date is crucial, and that there’s no excuse not to be. All it takes is a monthly check of the following key indicators of your business’ health. Checking in monthly will mean you clearly understand your position and can then make the right decisions to run a robust and profitable business. Monitor cash Cash needs to be closely monitored as it is the single most important indicator of business performance. With cash it is imperative that it is monitored more daily than monthly. It is also important that it is monitored on both a short-term and longer-term basis. Financial reports Too often I see businesses reacting to information months down the track. It is imperative that accurate reports are prepared on a monthly basis, close to month end so you can react in real-time to market changes. Most software can provide reports – from large business with fully integrated programmes to small businesses using xero type reports. Don’t just do your GST and move on to the next job – print your monthly reports and review them. Customers You must understand your customers – continually ask them what they want and what they think of your product or service. Use technology to help you connect and measure with them. Overheads Many clients do not know their monthly overheads yet it is such an easy calculation – even if done as basically as dividing annual overheads by 12 months. It is essential information to have when you reach that breakeven point in the month and start to make profit. Key relationships Strong relationships are fundamental to business success. So find a bank manager you connect with, who will give you their direct dial number and make sure you stay in touch. Likewise strong relationships with key suppliers are imperative. They’re often willing to extend payment terms or give discounts and allowances so constant communication is the key. Huge benefits can flow to your business including improved margins and support through tight cash flow periods. Gross margin Know your pricing model and continually strive to maximise your margins. Gross profit and margin are key financial indicators that need to fall out of your monthly reports. Only by understanding your model can you strive for improvements. Stock control Measure stock that is key to your business on a monthly basis to obtain accurate financial reports. This doesn’t necessarily mean monthly physical stock takes but it does mean having a programme or process to monitor levels, ageing and shrinkage. Rolling stock takes and spot checks are useful. Often when money runs out, stock is the culprit along with debtors. Debtors and creditors Monitor your debtor levels monthly. It is important to measure the days outstanding and have formalised methods of collections. This often requires continuous follow up and a firm consistent approach. Also measure your creditor’s levels monthly. Huge gains can be made by using technology and managing creditors on line and eliminating cheque payments. Employees Great employees are the key to business success. You need a process for collecting all the great ideas your employees have. You also need to monitor staff turnover on a regular basis. Budgets The difference between a dream and a goal is a plan. You must have both short and long-term business budgets, and review your monthly results to budgets. Most software easily accommodates budgets. If you’re stuck or confused about any of these matters, ensure you get professional advice sooner rather than later as staying up to date is fundamental to good business.
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April/May 2020 - BAY OF PLENTY BUSINESS NEWS

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