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Hudson & Young Blog

Australia records negative growth in loans to business

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The H&Y Finance Broker will tell you – getting a loan for small business is very difficult. Now we have the proof from UHY Haines Norton:

The study by international accounting and consultancy network, UHY, revealed that despite fairing well in the global financial crisis and having some of the world’s strongest financial institutions, the value of loans to businesses in Australia decreased by six percent in the last three years.

According to the research, loans to businesses in Australia shrunk by a greater amount than many European countries with outstanding loans to Australian businesses down from US$690 billion in December 2008 to US$651 billion in 2011.

UHY Haines Norton Chairman, David Tomasi:

“Ireland has seen the largest reduction in the value of loans to businesses with outstanding loans to businesses collapsing by 42 percent since December 2008,” Mr Tomasi said.

“But some heavily indebted countries – Italy and France - increased the value of loans to businesses, despite many of their banks being financially impaired by the Eurozone sovereign debt crisis.

“While our economy is performing well, relative to other industrialised countries, Australian banks have scaled back lending to small businesses causing some sectors of the economy such as the manufacturing sector - which is highly capital intensive –to be hard hit over the last few years.

“Lending to small businesses in particular, is a key barometer of economic prosperity as they are the engine of economic growth, and starved of credit it’s difficult for them to expand and create jobs.

“Unlike larger corporates that can raise money through bonds or share issues, small businesses are hugely reliant on bank financing and the simple fact is that in a globalised world, if a small business cannot expand to fulfil an order, that order can be lost to better financed overseas competitors.

“Governments should reverse this negative trend in businesses funding by offering other forms of funding outside of the banking system such as tax breaks for private investors,” Mr Tomasi said.

There are options for small business outside of traditional bank funding, but H&Y are careful to match the lending type with the business requirements.

For example, a business starved of cash through slow paying customers may think that factoring (borrowing against debtors) is an option. We would advise against that as the financier will only lend against a debtor for 90 days (usually) so the finance is simply an expensive way of shuffling the problem out in time. Debt factoring for other businesses, however, may be a perfect way to fund growth.

Make sure you contact us to discuss your finance strategy.

Web Strategy 3.0

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The Internet has revolutionised the role small businesses have in the larger economy. Despite smaller spaces, they can now compete with larger businesses through an effective online presence.

Shashi Bellamkonda, director at Network Solutions shares his tips for small business owners to improve their online presence.

1. Ask your customers where they want to receive news and updates

It's not only about Facebook and Twitter. You first have to figure out where your customers go to receive their news.

Then, if they are using social channels (and most Internet users are!), the next step is to engage with them. Social media isn't a one way street. Listen to your customers and reply to their posts. That's how you turn average customers into brand ambassadors.

 2. Find out exactly what people are saying about you

Set up a Google Alert about your small business. This is how you'll be able to get useful customer reviews that can benefit you.

3. Know what you need to learn and do it quick 

Again, this can be done by keeping on top of your customer reviews and be in constant communication with your customers. This is how you compete with larger businesses.

While they may have corporate hoops to jump through to make even the simplest business decisions, small businesses are more nimble and able to follow their gut instincts on new trends to beat their larger competitors to the punch.

4. Have an advisory board of people in you network 

Find out who keeps up with trends and the latest technology that can help your business.

"Whatever you do, don't invest in things and technology if you don't know what it's going to do for your business. Whether you're looking specifically to impact the bottom line or you're more concerned with awareness building, make sure you set goals and understand the steps you can take to achieve them.

5. Become a presence in your community

You need to continuously be out there and attend as many trade shows as possible.

Networking is very important, but beyond that, find your niche and establish yourself as a thought leader. Becoming a resource for your peers is a win-win: you'll help them while you challenge yourself to continue to grow. Sharing knowledge earns you karma and also gives you the opportunity to pay it forward.

Always be on your own payroll

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Russell Emmerson at News Ltd reports:

BUSINESS owners need to pay themselves a salary - for their own good and for the good of their business.

RSM Bird Cameron director Terry Rodoni says the value of a business can only be assessed once a wage is included - a key factor before a business is sold.

"An independent person working in the same job would be paid a salary, so why would you not pay the business owner?" he says.

"Building a salary into a business also allows the owner to compare the business performance against prior year results and competitors' results. This in turn allows business owners - with the help of their accountants - to assess the value of their business."

Salaries are often based on subjective rules, such as a set percentage of profits or a rule of thumb. But businesses can assess their viability by turning to outside measures. Industry awards or industry studies undertaken by personnel agencies can give a market figure, which can then be adjusted for skills and experience of the operator.

John Paolacci, who is a partner in enterprise advisers PKF, says the sale of a business or the entry of a new partner often forces a business owner to "professionalise" their remuneration.

In general, H&Y encourages the practice of owner salaries, however, we also understand that it is not always practical and there are important tax considerations to be made.

The concepts of business benchmarking (comparison with other like businesses) are important in the operation of the business and setting of KPI’s as well as the value of the business at sale. Small business finance is a nightmare at the moment and practices such as this are always looked upon favourably – anything that helps should be considered.

And there are less obvious considerations:

Rodoni says full transparency of owner wages can also set a good example for other employees.

"It shows that the owner is subject to the same set of 'rules' as the rest of the team," he says.

"An extension of this is that it aligns the salary paid with effort and measures the performance of the business with budgetary controls."

More on the PPSR

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We have posted a few articles now about the new Personal Properties Securities Register. We are finding this new system has implications to almost every business in one way or another.

Cash Resources Australia has made an important observation in their latest newsletter:

"If as a business you sell based on terms of trade that stipulate title in the goods sold is retained until payment in full is received (Retention of title clauses or Romalpa clauses), if drafted correctly historically retention of title clauses have given a preferred interest in those goods in the event of insolvency. These arrangements have never been previously registered however the PPSA now treats those retention of title clauses as security interests for the purpose of the PPSA. If those security interests are not registered on the PPSA register, then you as the seller lose its rights in the property as against other creditors with “perfected” security interests."

So, just relying on your standard terms and conditions of trade is probably not enough. As a minimum, we believe every business in this situation should have their terms and conditions reviewed and updated to reflect the new laws. And by the way, this is included in our documentation audit.

Don't Get Burnt by Your Phoenix

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Some more interesting new rules from the top:

The Gillard Government is proposing tough new measures to crack down on 'phoenix' company activity under draft laws.

The Similar Names Bill imposes personal liability upon directors for the debts of 'phoenix' companies that are set up using a similar name to a failed company that has left unpaid creditors behind.

"These amendments will crack down on 'phoenixing', where directors try and avoid having to pay workers' entitlements and other unsecured creditors by restarting their failed business using a similar company name, sometimes located in the same premises with the same staff and clients."

"Under these proposals, directors of a failed company can be held liable for the debts of a company that has a similar name to a pre-liquidation name of the failed company - otherwise known as a phoenix company."

"This will stop directors from exploiting the limited liability protections in the corporations law to avoid having to pay any debts, including workers' entitlements, that they incur in a 'phoenix' company."

"This will ensure that directors cannot keep racking up debts through multiple 'phoenix' companies and escape their obligations to pay workers' entitlements and other creditors."

phoenixIt is important to be clear how these proposed new laws will apply, as the inference from the announcement and the actual proposed operation do not quite match.

The proposal does not make directors liable for the debts of the company that has been replaced by the “phoenix,” it actually makes the director personally liable for the debts of the new company should it also fail.

This means that the implications of these proposed laws will need to be brought into consideration when restructuring a business. For example, there are applications that can be made at the time of the restructure to ensure that the rules do not apply.

How to Guide - Business Turnaround

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Cara Jenkin has put together five simple steps to rescuing a failing business. They are:


UNDERSTAND what put the company where it is now, says business turnaround specialist John Treace. ``When businesses fail, it is most often due to ineffective management,'' he says. ``The people who created the problem in the first place will not know how to fix it.'' It's best to employ an outside consultant to assess what's going wrong.


"AT the heart of culture are the core values a company embraces," Treace says. "They are simple action statements that define the principles the company believes in, not fuzzy declarations that can be interpreted at the whim of management. They should be published and posted throughout the company." Employees should understand the corporate commitment to those principles and that disciplinary action will follow if they are violated.


IDENTIFY who should stay in his or her current position and who must find a position elsewhere. Most failing ventures have poor methods of measuring individual results so care must be taken in this selection process, Treace says. It isn't so much who you fire as who you hire. "Look for a track record of success," he says. "To retain high-performing staff, you must ensure these valuable employees can trust management's word, that management has their best interests at heart and that management is committed to distinction in all they do."


"DON'T expect this to be an easy task it usually isn't," says Treace. "Most employees believe they have been on the right course and they see the company's failure as due to the ineffectiveness of other departments, not theirs. When the new vision is communicated, expect employees to fall into three categories: those who embrace it with enthusiasm; those who sit on the fence to wait and see how things go; and those who resist the change." The sooner management converts the fence-sitters and resistors, the better.


IT makes little sense to begin strategic planning before these first steps have been accomplished, says Treace. Don't hold these meetings in secret as workers will be suspicious as to why they are being held. Inform staff of the outcome.

Are you Eligible for Free Money

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With all of the talk of government deficits and the ATO aggressively collecting to get some cash in, it is easy to forget that governments at all levels do still run programs to assist business.

There are numerous government and non-government grants available. Some grants can involve millions of dollars and others just a few thousand, but they all require a process to be followed. Grants Gov Australia provides the following tips for a government grant application:

  • Have a plan – the first thing the government departments will want to see before even considering releasing any funds to you is that you specifically know what you will be doing with the money…
  • Have a budget – how much money are you expecting from the government grant you are applying for. Every type of grant has a limit, and it is not your prerogative to exhaust that limit, but rather to calculate the amount you will need...
  • Select a grant that has a low number of applications – don’t aim straight for the government grants that are offering the largest sums of money. These ones will undoubtedly be the hardest to apply for, and the hardest to get an approval for too… Sometimes you are better off applying for a few lower applied government grants, as you may very well receive more than one grant and end up with a higher amount than expected.
  • A Government Grant is normally relatively straight-forward to apply for, however occasionally, some grants with a higher dollar value ($500’000+) may have much more complex requirements so you may need to enlist some good help – look for a mentor or advisor who can lead you in the right direction of making a good government grant application.

Hudson & Young consultants have years of experience in preparing government grant applications. We can add the following tips:

  • Make sure you are eligible and ALL criteria have been met – the application will not be successful if you “nearly” qualify.
  • Most grants are competitive i.e. you are competing against other businesses for the same grant. Make sure you have as much information as possible in the application and make it a selling document.
  • We have found that many grant applications are effectively business plans. Use the application to create and document your business plan. This will give you something useful even if the application is not successful (there are even grants for the business plan that may end up as another grant application!)

If you are not sure what grants are available or need help with an application, contact us.


Business Lies

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An interesting article by Ben Horowitz about the tendency of companies in trouble to lie – to themselves as well as others:

"When a company starts to lose its major battles, the truth often becomes the first casualty. CEOs and employees work tirelessly to develop creative narratives that help them avoid dealing with the obvious facts. Despite their intense creativity, many companies often end up with the exact same false explanations."

Horowitz provides some familiar examples:

“She left, but we were going to fire her, or give her a bad performance review” – High tech companies tend to track employee attrition in three categories:

    1. People who quit
    2. People who got fired
    3. People who quit, but it’s OK because the company didn’t want them anyway

Fascinatingly, as companies begin to struggle, the third category always seems to grow much faster than the first. In addition, the sudden wave of “semi-performance-related attrition” usually happens in companies that claim to have a “super high talent bar”. How do all these superstar employees suddenly go from great to crap? How is it possible that when you lose a top-rated employee before you can say “unwanted attrition”, the manager carefully explains how her performance fell off? 

“We would have won, but the other guys gave the deal away” – “The customer selected us technically and thinks we are the better company, but our competitor just gave the product away. We would never sell so cheaply as it would hurt our reputation.” Anybody who has ever run an enterprise sales force has heard this lie before. You go into an account, you fight hard, and you lose. The Sales Rep, not wanting to shine the light on himself blames the “used car dealer” Rep from the other company. The CEO, not wanting to believe that she’s losing product competitiveness, believes the Rep. If you hear this lie, try to validate this claim with the actual customer. I’ll bet you can’t.

“Just because we missed the intermediate milestones doesn’t mean we won’t hit our product schedule” – In engineering meetings where there is great pressure to ship on time—a customer commitment, a quarter that depends on it, or a competitive imperative—everybody hopes for good news. When the facts don’t align with the good news, a clever manager will find the narrative to make everybody feel better—until the next meeting.

“We have a very high churn rate, but as soon as we turn on email marketing to our user base, people will come back” – Yes, of course. The reason that people leave our service and don’t come back is that we have not been sending them enough spam. That makes total sense to me, too.

The reason for these “lies”, it is argued, is because people who are natural business builders will usually accept and act on good news, but not act and look for alternative explanations on any bad news.

And his moral of the story…

"So if you read this and it all sounds too familiar and you find yourself wondering why your honest employees are lying to you, the answer is they are not. They are lying to themselves.

And if you believe them, you are lying to yourself."

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