Monthly Archives: June 2011

the money plan

I had breakfast the other morning with Scott Kilmartin of Haul. I like talking to Scott about the retail market because he has both heaps of experience, and quality insight. Scott felt that the small independent retailer was absolutely on the wane at the moment and on June 30th a lot of accountants would be advising their clients to shut up shop. This isn’t because unique offerings aren’t palatable to a jaded market place, its because most small independent retailers haven’t moved with the times and willingly embraced social, technological and commercial landscape changes. For instance, any shop that thinks that just having a Facebook page is a social media strategy is almost certain to die.

Anyway this got us sidetracked onto accounts, finance meetings and what Accountants were useful for.   Scott, as the proprietor of a retail business, is fairly typical in what he does. He doesn’t look at his accounts that often if he has money in the bank, he meets his Accountant once a year to discuss tax returns and the idea of having a finance meeting by himself just seems a bit silly.

So I tried to give Scott some practical advice.

  1. If your accounts aren’t useful for decision making, change them so they are. The list of accounts on your Balance Sheet and Profit & Loss is called the “Chart of Accounts” and you can change them to whatever you want for your own reports. Eg I like to split out landline , mobile and internet phone calls, rather than have and expense called telephone.
  2. Try meeting with your Accountant 4 times a year and ask him to offer proactive advice, not just reactive advice on your tax. You may be surprised what he come up with, and if he comes up with nothing, fire him and get a new one.
  3. Have regular finance meetings. If you have staff, get a senior staff member at the table. You may also like to have an advisor, bookkeeper or your accountant there.

I like finance meetings in small businesses, they really highlight what’s going on in the business and the places you need to focus to become more profitable. Some of the topics you can cover are:

  • Building a budget – so you don’t end up spending more money than you earn. Especially tricky are the costs that only crystallise once or twice year, but are being generated silently all the time, such as leave loadings or car servicing. Depreciation is a good example of this.
  • Comparison your actuals to your budget and determine an action plan to address the variances.
  • Build some simple financial policies such as “what should your working capital be?” My position is that for most small businesses – 3 months expenses is a nice starting point for discussions. Another policy could be “how much profit should you distribute and how much should you reinvest?” of “If you have excess cash at bank, how should you invest it?”.
  • And finally, a personal favourite, work through a couple of expense line items each meeting, to determine whether they are still valid. You would be surprised how often expenses either get reduced or vanish when you put them under the microscope.

So if you don’t intend to put some finance meeting in the diary for this financial year, I reckon it may be worthwhile asking yourself “do I intend to be around next financial year”.

managing money

managing successful employees

At the of the day I lay my head down on the pillow and asked my wife “So how’d it go?”. “Great” she said. She’d been having problems with a senior employee who had started refusing to undertake activities he had been doing for the last 9 months, because they weren’t specifically in his “task list”. Unfortunately, he refused to communicate directly on the issue and wouldn’t even meet her eyes in team meetings so she didn’t know what had changed. Being quite stressed about it, she arranged that morning to have a separate meeting with him just to discuss the issue.

But, she had apparently resolved the issue with a simple question. She said “So I asked him ‘What do you need for me to do for you, for you to be successful?’ He almost cried and all the pressures and worries he had at work just came tumbling out. We then put in place a plan to fix his issues.”

My experience with the workplace over the last 25 years is that good can almost always come from bad. Customers hating your service, leads to to changes in your service. Good staff quitting leads to better employment arrangements etc. For my wife she has suffered under many terrible bosses that were generally either misogynistic or constantly trying to prove their superiority, or both. Her work history has include some spectacular quotes from bosses such as:

  • “One week a month its waste of time you coming to meetings”.
  • “Its a team golf day, blokes only though”.
  • “Don’t ever tell anything to HR, it will always get back to me immediately”.
  • “You role as a worker, is to do what ever I tell you and make sure I look good”.

From these types of experiences (and many others!)  she has evolved an approach where she sees her work as a manager, as a series of tasks she needs to accomplish, but people as the only tools she has.  Keeping her people focussed, effective and motivated is one of the keys of success as she has never been “over-resourced” with people that are “over-qualified” for the job.

So after all her bad experiences with managers, what a great manager she has become because of it! Her approach was “I just explained to him that I couldn’t afford for him to fail, so what did he need from me to ensure he was successful?” Win / Win.

I am very proud.

Maps to Real Life

I know a guy that has moved his family to Italy, so his children would grow up with a bit of culture in them. The driver was his increasing belief that his kids were evolving into something he’d like to shoo off his lawn. And no, he’s not of Italian descent and neither’s his wife. He just thought that spending a couple of years in Europe would do the family the world of good. He occasionally posts on line to Tumlbr, with a blog called “Shit I Learned – things you pick up on the way” I like the title, because it reflects how I feel about my journey.

Anyway, one of the things I reckon I have learnt along the way – is that the closer a solution maps to real life, the less problems you find you have. I use this as a guide for when coming up with solutions. Whenever a process or proposed solution starts to feel a bit too abstract or too complex or too removed from people’s actual motivations – I ask myself what’s really happening here? Is this how real life works? Are the general steps the same, and the motivations and goals aligned?

For instance, in one of Flinders Pacific projects, we get bonuses paid on our assessment of what is the likely outcome of our marketing efforts, at both one and three years in the future. The bonus gets paid today, but the auditing of our performance won’t happen for several years – by which time we are likely to be long gone. This arrangement doesn’t particularly well “map to real life”. Although unsurprisingly, I don’t complain.

However this belief in arrangements being more effective and robust when they “map to real life” made me excited when I heard about some arrangements in the innovation area in Finland. Göran Roos, who’s currently in Australia, is the chair of the VTT which a bit like Finland’s version of the CSIRO. It employs around 3,000 researchers to come up with cool ideas in a variety of domains. The VTT’s underlying purpose is one that I find highly attractive. Its objective is to come up with technical innovations to improve the competitive performance of Finnish industry.

But the bit I love, the bit that maps to real life so much better than our arrangements, is that is performance is not judged by itself, Government Ministers or their staff – its performance is actually judged by Finnish industry, its customers! Who better to assess your performance than the customer.

Despite the fact that we consider ourselves to be a clever country, it kinds of makes me wish that our government had learnt this along the way. CSIRO, NICTA, the CRC’s and in fact any government funded research agency would surely benefit by being judged by their customers.

Getting Paid Twice

Goran RoosHow do you make $2 profit from every $1 sale? That was the guts of a fabulous speech by Goran Roos last night at the Churchill Club. Its hard to put Goran in a box, but he is a management consultant, entrepreneur, Professor, Chair of the Finnish version of the CSIRO and currently on loan to the South Australian Government as a thinker in residence.

Some great examples he raised around becoming more profitable were:

Mills & Boon – Who in the 60’s ended up making $1.25 profit for every dollar of revenue they made selling books. The key to this was selling (80,000 copies of) a writers manual to potential authors. This level of profitability ended once Mills & Boon changed hands.

Costco – Who use their membership fees to cover their fixed costs. They then make their real profit not on the low-margin goods they sell, but in their banking as they receive immediate payment from customers, but pay suppliers at around 270 days. Effectively they are a bank!

Pearson Publishing – Every article gets written both as a summary and an in-depth piece. The journalists become subject matter experts and write books, give speeches and provide training. So the one piece of creativity ends up having 5 or 6 different revenue streams attached to it. Interesting to compare them to the L.A. times that reacted to reduced revenues (due to the internet) by cutting editorial staff, which led to a quality reduction and eventually a death spiral.

Ryanair – Although you can technically fly for free with Ryanair if you purchase your tickets early enough and obey all their rules, Ryanair has generally become the most profitable airline in Europe. They will charge you penalties if you book late, haven’t printed out your boarding pass, want to check luggage, want to make a change, or want food and drinks on board. They charge airports to deliver passengers/customers and have advertising everywhere. Their costs are cut to the bone using second hand equipment, using staff from countries with high unemployment rates and even making staff bring their own pens if they feel they need to use one.

So increasing profits is not so much about cost cutting, which normally ends up severely damaging, if not killing, a business after a short-lived improvement in profitability, but doing two things.

1. Asking for an unreasonable outcome, such as $2 profit from every $1 sale. This sets creative juices flowing and makes your team think outside the box.

2. Looking to access new profit pools, rather than try to increase your share of existing ones. This means that you can have your profits exceed the values of your core sales.

So it appears that the key to increasing your profits is really understanding who your customers are, who all your potential customers are, and how to turn your suppliers into customers. I loved hearing that not only did Ryanir do great deals with their food suppliers, they also charged their suppliers a fee for exclusivity.

Localisation

Twenty one years ago, when I left Perth, I planned to return in two years because that was where my home was. Despite not being born there, I had become an adult in Perth and it was where all my “forever friends” are. You know, the ones you don’t have to speak to for years, but you know you are still mates.

It’s been about five years since I was last back there, so I really enjoyed the 5 days or so I have just had. One day working and four days playing. But the thing that surprised me this visit, was that it was the first time I looked at Perth with alien eyes. Sure I could still mostly get around without turning the Satnav on, but everything just looked and felt strange.

The sunlight was much harsher, despite being the middle of winter. There was sand everywhere not soil and outside the major cities and towns, buildings were one story high. And after enjoying a fair amount of alcohol with old friends, I realised their values and aspirations were subtly different. It took me a while to remember that Perth is the the most isolated western city in the world, and this is reflected in every day attitudes. Even shopping for groceries, there is fierce brand loyalty to W.A. sourced produce. At it’s core there seems to be a belief that W.A. made a mistake in agreeing to become part of Australia at the start of the last century.

So why am I rambling on about my trip?  Well it reminded me of one of the major take aways from a Churchill Club event a couple of years ago. I had Simon Baker – ex Realestate.co.au , Syd Low – ex Freeonline and Silvio Salom – ex Adacel, talking about “Going Global on a Shoestring”. They all agreed that the best design for a foreign office was to have an Australian financial controller sent over to maintain financial control, but you must recruit a local CEO.   A local CEO has local values and understands how to alter your value proposition and best engage with local customers.

The thing I realised whilst drinking red with old friends, is that this is also an important lesson for eastern states companies looking to expand to Perth. The changes in values are subtle, but critical if you want to launch a successful operation. It’s too easy to be branded an eastern states company and never gain traction.