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Hudson & Young Blog

Social media strategy

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This is the new marketing platform but where do you start? Be careful, it is not for everyone:

SOCIAL media might be the "biggest gift" for any small business but be warned there are strings attached.

Experts have warned that, without proper training, it can do more harm than good.

And while some businesses bury their head in the sand, there is little escape.

Even if they are not employing Facebook, Twitter, LinkedIn, YouTube, Yammer, Instagram, Flickr and other platforms as part of their business, staff are using them during work for private use that often crosses over.

"Social media for small organisations is almost like the biggest gift you will ever get," Deloitte Digital chief edge officer Pete Williams says.

He says employers trying to ban social media are fighting an uphill battle and soon-to-be-released research reveals that, of the businesses that banned access on their internal systems, 67 per cent of employees still used it.

Some great tips:


Whether it is Facebook, Twitter, YouTube, blogging or other platforms, the same principles apply:

* Don't write anything that you would be too embarrassed to show your mother.

* Impress upon staff that they should not do anything that will embarrass themselves or the business.

* Posts should be relevant.

* Appointing a social media committee, meeting each month, means it is not left to a couple of social media gurus.

* Ensure there are nominated people who are responsible for moderating.

* Know that social media can be used during work times, but not overused.

* Negativity about the workplace, especially during these times of downsizing, is a big no-no. Don't air your dirty linen.

* Do not comment on customers, suppliers and colleagues negatively.

* Be authentic and have a two-way conversation.

* Clearly spell out penalties for violations, including dismissal.

Big four losing share

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Mortgage broker ResiMortgage chief executive Lisa Montgomery.

HERE at H&Y we are seeing that the smaller banks are trying to assist with a “how can we do this” approach rather than “why should we not do this”.

It would seem that the big four are now trying to fit everyone into a template and if it doesn’t work, then move on. Others agree...

AUSTRALIANS are again flocking to smaller banks and lenders for their home loans after the big four banks recorded their biggest drop on record of mortgage-broker loans.

The big four banks account for just 59.8 per cent of new home loans taken out nationally through mortgage brokers, compared with 64 per cent a year ago.

In Victoria, the figure has fallen from 63.9 per cent to 62.3 per cent.

According to independent research firm Market Intelligence Strategy Centre, the big four banks have lost all their gains in market share that they clawed back during the global financial crisis and are now back to pre-GFC levels of 2007 and 2006 when smaller lenders were rapidly gaining popularity.

Aggressive competition, switching incentives and discounted rates have helped the non-major banks increase their market share, a MISC spokesman said.

Although the big four banks, Westpac, ANZ, Commonwealth and National, have had a slightly lower market share of broker mortgages, the latest June statistics show it is the biggest single drop on record, down 4.2 percentage points in 12 months.

Mortgage broker ResiMortgage chief executive Lisa Montgomery said the dramatic change in market share indicated increased competition and a "win" for borrowers.

"Major banks aren't getting as much market share because the second-tier banks and other lenders are becoming more popular. And the reason they're more popular is because they're offering better deals, so that's got to be a win for borrowers," Ms Montgomery said.

She said it had been a deliberate strategy of the smaller lenders to offer good value to brokers and their customers. "What we are seeing now are the results of their hard work and their efforts to offer better value than the big four banks," she said.

"During the financial crisis, there was a flight to the big four banks because of the uncertainty and fear surrounding those times and the uncertainty about smaller lenders not being as safe. Now that more people understand the financial system, the volume of new mortgages is being steered across many lenders, not just the major players."

Shops fight back

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Online sales (or eCommerce) should be part of your business strategy and seen as a channel for sales - not necessarily the only channel.

TRADITIONAL retailers could be making a fightback, with data from the spending habits of 2 million shoppers suggesting they are clawing back online market share from internet businesses.

Commonwealth Bank research indicates growth in total online retail spending remains strong - up 30 per cent in the year to July to $14 billion. According to CBA cards data, online sales represent 5.4 per cent of retail sales, with clothing the fastest-growing category.

But of interest to shops stuck in the real world of shopping centres and suburban high streets will be the growing view from CBA analysts that pure-play online retailers no longer have the web channel to themselves.

''After a year of explosive growth in 2011, the pure-play online retail sales growth is converging with total online sales growth,'' said Savanth Sebastian, an economist at CommSec.

''This convergence suggests bricks and mortar retailers are making a greater impact online and stemming channel-share losses to the pure-play operators.

''This may be an early sign that the international trend of traditional 'bricks and mortar' retailers dominating the online channel is playing out in Australia.''

New challenges for franchises

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The face of franchising in Australia is changing due to changing (and challenging) market conditions. A new report shows that the sector has bounced from the global financial crisis.

Griffith University's biennial Franchising Australia report, released today, reports there are 1180 different franchise systems, 92 per cent of which are Australian.

This is a stark return to form for the sector, which reported 1025 systems in 2010 from 1100 two years prior.

The number of franchises has also returned to form, bucking the 2010 fall from 71,400 units to 69,900 units and reporting almost 73,000 franchises operating around the country.

"The overall increase in units disguises industry specific trends," the report by the Asia-Pacific Centre for Franchising Excellence says.

"The retail sector continues to struggle with weak consumer outlook, price discounting practices and the challenge of eCommerce.

"Conversely, the non-retail sector has experienced renewed growth as entrepreneurs continue to find gaps in the market that franchising can service."

That divide is clear with non-retail systems supporting a median 17 units (up from 15 two years ago), while retail systems have dropped from a median of 32 businesses in 2010 to 28 in the 2012 survey.

The report, authored by Professor Lorelle Frazer, Associate Professor Scott Weaven and Dr Kelli Bodey, also points to the ability to recruit and finance new franchisees as a key challenge.

About 77 per cent nominated franchisee recruitment as a challenge and 49 per cent pointed to financing difficulties for franchisees.

Franchisors report spending an average of $20,000 on advertising to attract candidates double that reported two years ago.

But the survey says there is evidence that franchisees are sticking around longer.

"The average length of time that a franchisee remains in the system is seven years, with the majority of franchisees spending between six and 10 years in their franchise system," the report says.

"Given that the average term for franchise agreements is five years, there is clear evidence that franchisees are renewing their franchise agreement at least on one occasion."

Remember, H&Y has experience consulting to both franchisors and franchisees. Contact us for more information.

Incubate for growth

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Pub Games director Chris Murphy (right) with his business incubator program manager David Williamson. Picture: Eugene Hyland

H&Y has been a strong supporter of business incubators, consulting to many businesses based in these unique environments.

The industry has come a long way since the first incubator, thought to have had a previous life as a poultry warehouse, opened in New York in 1959.

There are now an estimated 7000 incubators around the world, and an estimated 80 around Australia, and some believe that a $14.6 million Federal Government investment in a new project in Melbourne's west may signal a new era for start-up support.

What to expect

Incubators charge low rents and offer an "easy-in, easy-out" strategy to help start-ups bridge the gap to commerciality. But the better ones provide much more than a receptionist and a board room.

Investor Kerwin Rae says ideas and networks of like-minded businesses make the difference but a new breed of venture capital-backed incubators offer a win-win situation.

"They are looking at it as a way of cornering the market but they are also linking them into a service contract," Rae says.

"I think that's going to catch a few people by surprise until the market is educated as to what to expect."

Where to start

Phillip Kemp says start-ups should interview the managers - especially where they are joining you as an owner of the business... Analysing costs is also important to ensure your new business is not counting the cost of every photocopy when cashflow is scarce.

What will sell?

Kemp says the interview process goes both ways as incubators look for the best opportunities to invest in.

"The venture capital-backed incubators are looking for deals because they need to generate a rate of return," he says.

"They are skewed to opportunities that are scaleable, that can rapidly grow into a global market from day one."

While the structure of deals will differ, an initial 5 per cent equity stake may underpin start-up costs - with additional investments for subsequent development stages.

Too much red tape

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Some wonder how anyone gets any real work done...

BUSINESSES are spending up to four hours and $200 each work day untangling government red tape.

Workers and consumers are paying the price, businesses claim, as the cost of compliance whittles away wages and makes production more expensive.

The Australian Chamber of Commerce and Industry's new "red tape" survey of 870 businesses has found that one in four had to provide identical information to different agencies.

Half complained they had to comply with regulations which government agencies did not even bother enforcing.

And one in seven businesses took more than 50 hours to prepare their last tax return.

The Tax Office, local councils and Fair Work Australia were rated as the worst "red tape" culprits, followed closely by safety regulators and Centrelink.

Nearly half of businesses spent more than $10,000 a year complying with government regulations, and a quarter spent up to $50,000 - roughly $200 each work day.

One in 10 spent more than 20 hours a week - or four hours a day - complying with regulations ranging from planning, tax, and industrial relations to consumer and health laws.

Chamber chief executive Peter Anderson said the cost of compliance meant employers had less money to employ extra staff or award pay rises.

Business wanted government agencies to make their rules clearer, and forms shorter and simpler to fill in.

Often businesses had to provide exactly the same information to federal, state and local government agencies.

"Governments should be passing information to each other," Mr Anderson said.

"There are many bureaucratic requirements, such as hazard identification schedules where the forms sit in a folder in the office - just in case an inspector comes in one day.

"That's just box-ticking compliance that doesn't improve the safety outcomes."

Kids' clothing designer and importer Shane Pepper, who owns the Plum Babywear brand, said tax, import and safety regulations created the most red tape.

"For tax, keeping records for seven years is a lot of paperwork to have to keep in case you get audited," he said.

"Compliance is not cheap, and at the end of the day it does cost the consumer because we can't just absorb it."

Safe Work Australia yesterday revealed that state workplace safety authorities issued 57,611 safety notices to Australian businesses, resulting in fines totalling $15.5m, during 2010/11.

Workers' compensation schemes paid out $5.8bn in payments and medical expenses for injured workers during the year.

Be careful with mortgages

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An interesting legal case has recently been decided on appeal affecting secured lenders. We believe it is important to note the case as it is common for business owners and businesses to secure related party loans with mortgages – usually second mortgages.

The Full Federal Court of Australia (Queensland District Registry) handed down a decision on whether the Commissioner of Taxation was entitled to payment of a tax debt, in priority to a registered mortgagee's right to repayment of money advanced to a taxpayer when the taxpayer's property was sold.

The majority of the Court held that once the mortgage was released to allow settlement, the Commissioner's garnishee notice attached to the purchase price payable to the vendor taxpayer, and the Commissioner was entitled to payment in priority to the mortgagee.

The Case

The taxpayer was the registered proprietor of property over which two mortgages were registered. The taxpayer entered into a contract for sale of the property, but the purchase price was not sufficient to pay out the loans secured by both mortgages in full.

The Commissioner of Taxation served notice under section 260-5 of the Taxation Administration Act 1953(Cth) on the purchasers' solicitor and subsequently on the purchasers personally, requiring payment of an outstanding tax debt owed by the taxpayer.

As settlement approached, a disagreement arose as to how the proceeds of sale would be apportioned to the various parties. The Commissioner refused to release the purchasers from the section 260-5 notices unless the tax debt was paid. The first mortgagee was to receive the total amount owing to it. The second mortgagee refused to provide a release of its mortgage unless it was paid the full amount owed to it under the facility.

As a result of the disagreement, settlement was delayed and eventually took place some days later. The first mortgagee provided a full release of its mortgage in exchange for payment of the total amount secured by its mortgage. The second mortgagee provided a release of its mortgage on the condition that the balance proceeds of sale were held in its trust account pending resolution of the disagreement.

The Commissioner consented to settlement going ahead under the arrangements which included the second mortgagee's release and the balance proceeds being paid into the second mortgagee's trust account, but made clear that its consent was not to be interpreted as a surrender of its claim to the tax debt.

Court Finding

The purchaser's obligation to pay the tax debt to the Commissioner became absolute under s260-5 when the purchasers came under a contractual obligation to tender the purchase price to the taxpayer. This could only happen after the taxpayer obtained releases of the mortgages and offered the purchasers unencumbered title to the property. At the instant that the purchasers owed money to the taxpayer, the purchasers fell under a statutory obligation to pay that money to the Commissioner.

Therefore, the second mortgagee compromised its position when it released its mortgage over the property, even though the balance proceeds of sale were held in trust pending resolution of the dispute with the Commissioner.

Conclusion and lessons for mortgagees

Firstly, never release a registered mortgage without receiving payment of the amount secured by the mortgage. The second mortgagee agreed to release the mortgage and allowed the proceeds to be held in a trust account pending resolution of the dispute—this was ultimately fatal to the second mortgagee's position. Had the second mortgagee insisted that it receive payment of the debt secured by the mortgage at the time the mortgage was discharged, the Commissioner's notice would not have attached to any proceeds. Of course, failure to release the mortgage may have other effects, including the failure of completion of the contract for sale.

Secondly, the principles in issue in this case do not arise in the case of a sale by the mortgagee, as the proceeds of sale are payable to the mortgagee in such a sale rather than the vendor.

The best advice, of course, is to seek legal advice from your lawyer.

Be ready for audits

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We have been noticing for some time (and mentioned here) that the Australian Taxation Office has been particularly aggressive with it's collections. Any assistance and information from the ATO is always welcome:

BEING targeted by the taxman can be a scary experience, but business owners who take the right steps to prevent it can minimise much of their fear.

The Australian Taxation Office released a guide in August to make it easier for small-to-medium enterprises to understand how its compliance works, a move that has been welcomed by accountants.

The ATO says it will "use the full force of the law" for businesses deliberately not complying but will "make it easy" for those opting to do the right thing - a threat designed to encourage early compliance.

Deloitte's head of tax controversy, Ashley King (pictured), says business owners are now better informed about how the ATO goes about checking and reviewing tax returns.

If you are being targeted by the ATO, its first contact is often a letter or phone call seeking extra information. That can then lead to a review or audit of your tax return where a team of ATO experts may "pick it apart", King says.

"If you know their approach, you are better prepared."

Tax Commissioner Michael D'Ascenzo says this is the first time that the ATO has published detailed information about its approach to tax compliance for SMEs.

"By publishing information on how we assess risk and what attracts our attention, we intend to provide more practical certainty for taxpayers," D'Ascenzo says.

"Risks that attract our attention include things like where tax performance varies substantially from business performance," he says.

King says if you are in the ATO's sights, you should first identify the issue it is concerned about and review your tax papers and calculations.

"Seek advice from an experienced accountant or lawyer," he says.

"It is never too late to ask questions and reorganise your business affairs so that you have greater confidence.

"Talk to the ATO. Consider making a voluntary disclosure to adjust a tax position you had previously taken.

"You might receive a lower penalty payment."

King says business owners must remember that Australia has a self-assessment system.

"This means it's the responsibility of each small business owner to get their tax return right," he says.

"Even if you have your tax adviser or a lawyer, you can't pass the responsibility on.

"You are always accountable. When preparing your return, you have to be confident in your process and your adviser."


* Inconsistencies in activity statements

* Spikes in refund claims

* Large one-off or unusual transactions

* Unexplained losses

* Business performance that varies significantly from similar businesses in the same industry

* Not disclosing offshore dealings

Source: News Ltd, Australian Taxation Office, Deloitte

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