Sullivan Dewing News

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Expect the unexpected

Jennifer Palmer - Jun 2011

How can you do that I hear you ask? Naturally I don’t have the answer but some anecdotal stories
may challenge your thinking.

In the past 6 months we have seen some terrible disasters both in Australia and overseas.
What would you do if you had just opened a shop in Queensland, then your shop and most of the
town were wiped out as a result of the devastating floods.

A friend of mine bought a commercial ski lodge in Miseko, Japan 2 years ago. Whilst this is on the
northern island of Hokaido and not affected by the radiation fallout from the tsunami on the
mainland, tourists will be cautious and may stay away for the next ski season. On top of that the
rising AUS$ against the US$ will mean more skiers may change their plans and ski the US rather than
Japan.

Another friend opened a healthclub in Christchurch NZ which was wiped out in the earthquake. This
club has still not re-opened and only a minor part of the insurance cover has been received.

My point is – How will you cope with the unexpected. Read More


Why do sports people set goals?

Jennifer Palmer - Jun 2011

I was listening to an interview with Kerrie Pottharst, the Australian Volleyball gold medallist, on the AMI Business Essentials monthly June 2011 audio CD.  Kerrie spoke about setting goals, short and long term; measuring (KPI’s); marketing and building relationships. Read More


3 ways not to go broke in business...

Jennifer Palmer - Jun 2011
3 Things every business owner should be doing. Read More

Conduct a Health Check of Your Business

Jennifer Palmer - May 2011
Is Your Business a Bit Sluggish or Suffering From a Runny Nose?

When you’re feeling unwell or lacking in performance, you would usually visit your GP or health professional for a diagnosis and possibly a remedy to get you back on your way to good health -right?

Well, your business is no different. Sullivan Dewing now uses a complex, financial modeling software program to provide a critical financial analysis – or Health Check – of your business.

Major Australian banks have recently adopted this software for the specific purpose of processing and approving business finance applications.

Apart from assisting in identifying the ability of a business to meet the banks “hidden criteria” for finance applications, this service has been invaluable in identifying the key drivers within a business that can assist in turning a loss making or cashflow poor business into an extremely successful and “healthy” one.

Here are some recent case study scenarios conducted on Sullivan Dewing clients:

Case Study 1 – Manufacturing business in building industry:

Analysis of the previous 4 years financial results demonstrated that the company is performing very well and is in a strong position to sustain a high rate of growth.

However, by analyzing the key strengths and weaknesses of the business, it was found that due to the fact that the business was successful enough to avoid the “cashflow crisis” that so many businesses experience, the culture had become such that cashflow wasn’t important!

So, whilst it was confirmed that the business had good positive cashflow ($156k), undertaking the Business Health Check lead to the discovery that the cashflow of the business had been trending down over recent years and as a result the business currently had “cashflow wastage” of $357k.

This is underutilised surplus cashflow. In this case, by working on improving a few key drivers of the business, the owner has the potential to personally benefit from the increased levels of surplus cash that result from the changes through paying off personal, non tax deductible debt (the home loan!).

Case Study 2 -Service business to commercial clients:

In contrast to case study 1, the analysis suggested that it is vital for the ongoing future of the business that certain key factors be addressed and improved as the business was not currently in a position to sustain future growth.

If the business continues to grow as it has, all things being equal, it would have a detrimental rather than positive impact, as cashflow would dramatically decline. In fact, a 5% increase in revenue growth would result in a reduction in cashflow of $100k!

It was shown that little attention has been paid to the key drivers of the business as they are trending in a negative position. The overall effect of this has been that the growth of the business in 2006 was at a rate higher than the business could sustain and has thus put a heavy strain on cashflow.

The good news is, that by knowing this information and by making some relatively minor, informed changes to the key drivers of the business, cashflow has the potential to turn around from a negative $111k to a cash positive position in the next financial year.

Every business we have analysed has leaked cashflow. No business is financially fully fit; there is always room for improvement. It is our bet that your business has leaking cashflow too – why not let Sullivan Dewing review your business so that you can turn your business around and benefit from that cashflow wastage?

Contact Jeni Wilcock on 9526 1211 or by emailing jeni@sullivandewing.com.au if you would like to have a Business Health Check conducted on your business, or to find our more information.  Read More

The purpose of starting a business (or running one) is to sell it

Jennifer Palmer - Mar 2011
We have witnessed a lot of activity in buying and selling businesses lately. You may have heard about the venture capital buyers of Qantas and Coles in the big end of town, you may not be aware that it is also happening in our end of town.

Small businesses, like ours, are being sold for profit multiples not thought of in the old days. Yes, I said, “profit multiples”. Yes, that means you will get the right price for your business if certain factors, including profit, are present.

Don’t be fooled into believing that you only need to worry about this when you come to sell! The point is, advance preparation for sale can be a business owner's best weapon and obtaining a periodic valuation of the business can be an excellent tool to gain an understanding of the market's view of your business.

I couldn’t tell you the number of times we have received phone calls from clients along the lines of … “I have a quick question for you… how much is my business worth?”

Unfortunately, the answer is not as quick as the question! The answer is always – depends!

It depends on a lot of factors:
• Who is buying?
• Why are you selling?
• Do you have a business? Or unfortunately do you just have a job?
• Is your business profitable?
• Will your customers stay when you sell?
• Will your team stay?

Remember the definition of a business – “something that makes a profit when you’re not there”. Imagine going away for a year and then coming back. If there is anything left…you have a business.

Let’s start with some basics. What do buyers look for when they buy your business? Or conversely, what should you have in place to achieve the best sale price?

The key elements are:
• Team & Culture;
• Systems;
• Customers;
• Suppliers; and
• Profit

The important thing to note is that with any method used for the valuation of an ongoing business, primacy in determining value goes to the business’ EARNINGS.

We understand that if you’re like most small businesses you will have made use of tactics such as giving yourself and family members as many perks and benefits as possible, kept your children on the payroll, made large contributions into your superannuation etc – so as to minimise your profit and minimise your tax liability.

That means your profits won’t be showing as high as they really could be. So, the first step is to normalise your financial statements and restate the profit so that, for example, salaries more accurately reflect a typical salary for that position rather than any inflated amount that may be being paid.

While it is important to restate financial statements, it is critical not to produce misleading figures through misstatements or omissions, which might make you liable for fraud. Expert accounting advice is essential here.

If you are thinking of selling or passing on the business, also consider your business structure. If the business depends on your own expertise, what is it worth without you? You can increase the value of the business by bringing in people who can do your job and bring management depth.

Start delegating and step back to let the business run with less intervention from you. Otherwise, if the business obviously relies on just one individual and there is no succession plan you are likely to be faced with a request for a ‘key man discount’. You can also train up employees so that they have more expertise in the business.

If you are preparing sufficiently far in advance, one of the most important things you can do is to take steps to maximise the profitability of the business. Just let us know if you are interested in how to do this.

So what are you waiting on? It’s time to start knocking your business into shape for that eventual day when you will sell. If you are not selling your business then by default you are buying it.

 Read More


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