When writing about the dreaded job interview the old cliché of “fail to prepare, prepare to fail” should always be the key message to get across. Being a pom and a big sports fan, I’ve seen my fair share of disappointments, so finding an analogy for this was the obvious place to start.

The London Olympics is fast approaching and as a kid and probably still today I always found the 110 metre hurdles to be the most exciting event to watch. To say there are obstacles to overcome within this event would be literal but true.

Colin Jackson is widely regarded as the greatest British hurdler of all time. He’s a Welshman but being English, I will always refer to him as British. It’s what we all tend to do; we’re happy to have them when they’re winning.

Before success Jackson competed at the Olympics in Barcelona 1992 and was tipped for great things, strolling through the heats but mistakenly opting not to prepare for the final, the day before the race. He finished in 7th and later in life admitted to youthful over confidence.

Jackson was renowned for two things. He was always the first guy out of the blocks and on achieving World Championship success, famously coined the phrase to the waiting press “”I start at the B of the Bang.” He also mastered the “dip” – the technique of leaning so far forward at the finishing line spectators would expect him to fall over.

His failure in Barcelona coupled with the two skills he had mastered played critical factors in him going on to hold the world record for 13 years and still holding the 60m world record today, 20 years on. He was obviously no slouch over the hurdles but the race preparation, confidence and momentum from a quick start and knowing he can close the deal with the “dip” would ultimately put him in the zone and give him the strength to win.

The synergies with this and many of life’s challenges, including job interviews are plain to see.

Your “pre-race” preparation

• Research the company – have they made announcements in the press?
• Know the elements of the job and know what the company is doing within the marketplace.
• Know the people you’re meeting with. Look up all relevant individuals using www.LinkedIn.com. Make a mental note of any synergies between yourself and these people and use this information if the opportunity arises. It doesn’t come across as stalker-like. It shows you’re thorough and serious.
• Have at least five questions prepared of which you will ask one or two at the end. Examples – Career progression opportunities, 5 year plan of the company, current rate of staff turnover. Do not ask about hours of work, salary, holiday entitlements or anything self-indulgent. Wait for the phone call or the second interview.
• Request a Position Description. Scrutinize this and think of a situational example of how you have carried out each required task. These will represent the body of the interview of which you will drive. A simple yes or no does not build confidence in the interviewer. I know the role requires……, I can do …… and previously did this within this role and the successful outcome of me carrying out that task was …….

“The B of the Bang”

• Start strong and stay calm. Arrive before time to ensure you’re relaxed and ready to go.
• Stand and greet them with a smile and offer a firm handshake.
• Once underway, bring out your recent and relative key achievements within the questions that you’re asked. There is nothing worse than interviewing someone and trying to encourage them to sell themselves and get them talking. Your answers with situational examples will naturally flow if you have prepared well.

The “dip”

• At the end of the interview, ask your pre-prepared questions, having made a mental note of which answers haven’t already been covered.
• Thank them for their time and be sure to let them know if you’re interested within your closing statements – Calm enthusiasm rather than drooling desperation.

Detailed preparation is the key factor. Just like athletes it’s the repetitive, drab, time consuming part that has to happen before the race.

The interviewer’s first and last impression will decide the close calls so start well, use your preparation to get over the hurdles and finish with a well-timed dip. Just like Jackson, you won’t fall over.

Rik Blanchard is a Senior Executive with Vantage Performance – an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues.

I am often amazed to hear people say that Debtor Finance is a bad product, or to hear an advisor telling their client not to use such a facility.

Sure, it doesn’t necessarily suit every type of business but…

To ignore a proven, well established product, the origins of which are thought to date back to England in the 1400s, shows a lack of understanding about how debtor finance can and should be used effectively. In fact, many businesses have grown exponentially with this type of product.

This misconception seems to be unique to Australia where it is estimated that few eligible businesses use this type of finance, unlike in the UK and USA where take up and market acceptance is much higher. Part of the problem dates back to the 1970s when “factoring” earned a bad reputation; being seen as finance from lenders of last resort.

Nowadays with increased regulation, the lenders range from major banks, through to second tier lenders and specialised funders or niche one-off invoice financiers.

‘The industry has moved a long way since the early days and the Australian market has grown by more than 600% over the past decade. In 2011 alone, $61.4 billion worth of business was funded locally, growing at a faster rate than any other business finance product during that same period.’¹

So what is Debtor Finance?

Factoring, Debtor Finance, Invoice Discounting… call it what you will, these are all variations on the same theme.

Essentially it’s a product which allows a business to use its debtor’s ledger as security for a lender to advance funds. The lender will typically advance up to 80% of the total debtor’s ledger within about 24 hours and the remaining 20% (less any fees and interest costs) will be funded as and when the original invoices are paid by customers.

In the current economic climate where access to bank credit remains tight (see my previous blog post – How to Get Access to Capital in 2012) this is certainly one product business owners should seriously consider when restructuring or refinancing.

Economic conditions are likely to remain this way for quite some time and credit policy is generally more flexible for debtor finance than for most other business products.

How does it work?

As a recent example, a fast growing business with an annual turnover of several million dollars was consistently reaching the limit of their overdraft facility. Their current bankers would not increase this as they had some recent tax arrears and insufficient equity in their security property.

By sourcing debtor finance, this business now has in place a $750,000 facility limit, without the need for additional property security and room to further increase the facility if needed.

What are the benefits of Debtor Finance?

Some benefits of debtor finance are:

• It brings forward cash receipts to improve cash flow and working capital position
• The business can become a cash buyer and thereby negotiate significant price discounts
• No real estate security is required freeing up the owner’s personal assets
• Facility limit can grow along with the business where a traditional overdraft will not
• No need for refinancing – can be used alongside any existing bank facilities
• It forces the business owners to review and improve their own credit processes, documentation and systems
• Ensures the business instils a vigorous collections process. It can sometimes be outsourced to the debtor finance company at less cost than the salary of a collections clerk.

In addition to reviewing your business performance with simple management tools (see Elizabeth Mawby’s blog – Monitoring Business Performance), why not review the finance facilities to see whether debtor finance might enhance your business?

With a wide range of providers available in the market there is bound to be a provider that can assist your business.

To find out more about this type of product, please feel free to contact me. I look forward to hearing your comments and experiences with debtor finance.

Rob Kirkpatrick is a Client Director at Vantage Performance – an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues. www.vantageperformance.com.au.

¹The Institute for Factors and Discounters of Australia and New Zealand (IFD), IFD Australia and New Zealand Inc., Sydney, 3 May 2012, <http://www.factorsanddiscounters.com/index.htm>

An in-house accountant or finance manager plays a critical role in any business. SME owners are typically entrepreneurial characters, primarily looking at the big-picture focus of growth and new ventures.

This mindset is important for success, but balancing this with a finance partner focused on sustainable growth is critical.

The right business partner should be the wise voice in your ear, ensuring you remain focused on cash flow while not losing site of growth potential.

The vast majority of our turnaround SME clients have lacked this structure.

The right person for you will depend on the size of the business and industry sector you’re operating within – their commercial perception should be a top priority.

Exact industry experience isn’t essential, however business synergies and understanding the commercial process of your company is crucial.

The position of in-house accountant / finance manager can be mistakenly seen as a required overhead that exists to ensure company books are managed sufficiently, suppliers and staff get paid and stakeholder engagement is managed.

What often gets forgotten is the commercial value and significant cost saving the right appointment should be able to deliver.

As with your sales manager, your in-house accountant / finance manager should be able to add significantly to the profitability of the organisation.

Capabilities of an In-house Accountant / Finance Manager

As well as traditional in-house financial responsibilities such as cash flow, budget control, reconciliations, AP/AR and stakeholder management – an SME finance manager should have experience working on process and commercial analysis. These are the necessary skills to look across the business and action improvements.

By giving them freedom to communicate directly with operations such as the site team or factory floor, they’ll be able to find ways of improving systems, process and controls, running through why a current process within the business is not cost efficient, and offering an alternative solution.

This includes anything from supplier reviews, customer and product analysis (e.g. 80/20- rule), stock analysis (e.g. to identify slow moving stock), and generally realigning expenses with current revenue levels.

Savings may be minimal or significant, but the focus on improvement could make a big difference to your net profit.

Well run organisations often have specialist management accountants or business/commercial analysts. These staff are the cost saving, streamlining specialists and the savings they identify often pay for their salary two or more times over – in line with what is expected of the sales team.

As well as internal process, they’ll conduct external or market analysis on your company. This will enable them to identify business growth or new venture opportunities.

Identifying an In-house Accountant / Finance Manager

In an ideal world, as a business owner or leader in your business, you will be looking for a CA/CPA who has fulfilled both a financial and management accountant or analyst role. This experience should give them the basic knowledge and skill-set to combine the traditional financial duties along with strategic analysis.

If the person you’re looking at is currently within one of these positions, you’re probably giving them their first lead position. They’re stepping up into an autonomous role and one that will allow them to add value and make their own mark, creating a career milestone.

This experience, combined with being the right cultural fit for the business and driven to step up from an entry level role, will generally mean the candidate has what it takes to succeed in an in-house accountant / finance manager role.

Throughout the interview process, be careful not to over-sell the opportunity. You will need to stress the importance of being hands on in the role as well as being comfortable at focusing on the basics as a priority which could take up the most of their time, especially in the beginning. They should not be expected to delve into the commercial elements and wider analysis of the business until they’ve got a good understanding of the day to day accounting fundamentals.

Screening questions to ask

• Describe a recent example of being ‘hands on’ within a business – Are they experienced and comfortable within an end to end accounting role?
• Can you give me an example of how you have improved system, process or procedure and the financial outcome to the business? – Can they add value through cost saving? Are they commercially savvy?
• What do you see as your main achievements to date? – Are these commercially focused and based around cost saving?

This is a process I’ve followed with a number of turnaround SME clients. Once a business is heading in the right direction, we’re looking to pass the reins over to a safe pair of hands.

An important factor is cultural fit. If you’re not naturally ‘gelling’ with the person from the outset, the chances are it won’t work.

Without that mutual respect, you’re very unlikely to offer them complete transparency into your business which they will need to do their job to the best of their ability.

Rik Blanchard is a Senior Executive with Vantage Performance – an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues.

Related blog posts you might enjoy:

• Techniques for Hiring the Right Executive
• Tips When Choosing a Career as an Interim Manager

Conditions remain challenging for many businesses and this could well intensify over the year ahead.

Now more than ever it is critical for management to undertake a strategic review of their business to identify areas of underperformance and possibilities for profit and cash flow improvement.

On a daily basis, we are working with management teams who want to turn their businesses around.

I’d like to share some insights into the early warning signs that we see daily in underperforming or troubled companies, and positive actions management can take to remedy the problems.

It is critical for management not to leave it too late to ask for help – many businesses that end up in receivership could have been saved if they had heeded early warning signs and sought advice at the appropriate time.

There are common threads that emerge from businesses which get themselves into trouble.

These are what we describe as internal causes of underperformance.

In many cases management have been too focused on growing revenue without considering the impact on margins and profit.

Other times, businesses don’t have the right systems and controls in place to manage their working capital (businesses that are growing rapidly can quickly come unstuck if they don’t aggressively manage their debtors, stock and creditors).

Another common cause is when businesses don’t have the right depth of skill in their management team, don’t review financial and operational performance on a regular basis and have outgrown their finance facilities.

Early warning signs of business distress

There are also early warning signs, if business owners and business leaders can lift their heads up from the daily grind to notice. These are the major warning signs management teams (and their advisors), should be alert to:

• Working capital growing faster than revenue
• Difficulty in obtaining finance
• Management “buying” sales at the expense of margin
• Loss of a key customer(s)
• Increase in staff turnover
• Increasing creditor pressure
• Inability to pay tax and superannuation liabilities
• Impending banking covenant breaches
• General industry downturn or consolidation.

Remedies for business distress

And here are the main remedies to combat many of the key issues that businesses will be facing at present:

• Put in place a robust 13 week rolling cash flow so you can truly understand how cash flows through your business and when key flash points may be arising.
• Implement systems that accurately calculate the profitability of your products and/or services. For unprofitable products, raise prices or consider dropping them altogether.
• Identify slow moving or obsolete stock and be prepared to cull products that are simply not moving fast enough to warrant keeping them. Be ruthless, if the products are not moving then your customers don’t want them!
• Develop a strategy to deal with your major stakeholders (bank, key suppliers, key customers, shareholders and employees). Keep communicating!
• Develop a marketing strategy to win new customers so you can decrease any customer concentration risk you may have.
• Document a strategic business plan including detailed forecasts so you can demonstrate to your financiers that you are working to a plan. This will increase or maintain their confidence which is crucial at present when it is harder to raise new finance.
• Review your management team – do you have the right mix of staff with appropriate skills? If not, decide if the existing team can rise to the challenge with additional training and mentoring. If you are not confident don’t waste time hoping they will someday, consider recruiting experienced staff to plug the gaps.
• Conduct a review of your processes to identify any areas of labour or time wastage. Are you really getting your products and services to market as efficiently as possible?
• Consider engaging a specialist business turnaround firm like Vantage Performance to project manage many of these strategies so that management can stay focused on the core business.

Given that such remedies take time to implement, I can’t stress enough how critical it is to seek advice at the earliest sign of underperformance.

It really is the difference between life and the “death” of a business.

Michael Fingland, Group Managing Director of national business transformation and turnaround firm Vantage Performance, was awarded Australasian Turnaround Professional of the Year 2011 by the Turnaround Management Association, for his work with fast growth and troubled companies. www.vantageperformance.com.au

Related blog posts you might enjoy:

• Stress Testing Can Strengthen a Business (Part 1)
• Stress Testing Can Strengthen a Business (Part 2)
• Monitoring Business Performance (Part 1)

Australia’s two-speed economy has created opportunities for businesses in fast growth – and in struggling – sectors to diversify.

For example, if you are in the mining services industry it is boom time as your business struggles to keep up with the amount of work you are being offered by the big mining companies.

Sometimes, because you already have a good relationship with a mining company, they may ask you to provide services that are out of your business’ direct area of expertise.

Or, if you are in a non-boom sector, such as retail and manufacturing, you may be looking to diversify your business so that you CAN get a piece of the mining and resources action.

At Vantage Performance we’ve noticed a growing number of cases around the country where strong and successful businesses have got themselves into trouble by leaping into business diversification without considering all the consequences.

In most cases we’ve been able to help them turn things around, but sometimes they’ve left it too late to put up their hand for assistance, and a potentially solid business has gone to the wall.

Before you risk diversifying your business, here are some important points to note:

• Review all the facts and fully understand all the ramifications first – don’t just consider the potential upsides.
• Be realistic – it is normally very hard to move into unfamiliar territory without proper knowledge and experience in a particular field.
• Ask yourself: does it fit with our current business and in how many ways does it actually compliment it? Can we cross-utilise resources?
• Be local aware! There are many different ‘givens’ and industry ‘norms’ that to a newcomer can be completely missed. This can prove very expensive.
• Moving interstate to take on projects in a similar but different field (for example, moving from general earthworks contracts to mining contracts) may look attractive. However you need to be fully aware of the ‘real costs’ of doing business in remote areas – it can be financially devastating and totally defeat the purpose of the initial shift. Worse, it can bring down the whole business.
• Be contractually aware and get help if you are unsure. For example, large mining companies have very specific and usually extremely complex, penalty-driven contracts that, if not fully understood, can quickly bring a business to its knees.
• Consider putting in place a general manager who can ensure crucial administrative components of fulfilling new contracts are not overlooked.

By considering these points you are in a better position to decide whether the opportunity to diversify is right for your business.

David Osborne is a Client Director at Vantage Performance, an award-winning national business transformation and turnaround firm.

Like to learn more? Check out our new website at http://www.vantageperformance.com.au/

1. Don’t just compete on price

Many family businesses start because the person is a good employee, for example a good tradie, and they go into business based on that skill rather than their business knowledge. So when they get to their first crisis they panic and start discounting. It’s the last thing someone in business should do, but it’s often the first strategy for dealing with difficult market conditions.

2. Innovate with products and services

The really smart companies, whenever there’s a downturn or a shock in the market, invest in product innovation and sales and marketing initiatives.

3. Identify your point of difference

When we work with companies we help them establish their point of difference. Ideally, each business has a USP (unique selling proposition) – something that no other business can offer.

4. Involve your customers

When you’re working on a new idea or product, why not invite your top customers to give you feedback.

5. Keep spending on marketing

The trap many businesses fall into is that when they’re short on dollars, they stop spending money on sales and marketing.

6. Squeeze your supply chain

The supply chain is usually the least understood thing in a business. It includes everything from the materials that you buy to manufacturing costs to all of your other suppliers.

7. Tightly manage your working capital management

Ensure you have a very robust debt collection policy in place so that you don’t end up doing favours.

8. Take stock

In tough times, inventory management is a must. You must analyse how quickly your stock turns over.

9. Create an A Team

Make sure you know and can measure how productive your staff are. Think of ways to encourage them to be more productive and efficient without burning them out.

10. Focus on stress testing

Regardless of the position your business is in, it’s essential to be undertaking detailed financial modelling and ‘what if’ scenario testing to gauge how sudden changes in market conditions will affect your business. It’s all about analysing best case and worst case revenue, margin and working capital scenarios.

Michael Fingland is a Managing Director of Vantage Performance – an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues.

Michael’s tips for survival in business first appeared in Australia’s Family Business Magazine (FBM).

Like to learn more? Check out our new website at – www.vantageperformance.com.au.

Many business owners and managers believe they don’t have the expertise required to implement their own performance management tools. They see complicated packages available for purchase and think (i) because it’s complicated it must be good; and (ii) because it’s complicated it must be beyond them.

Neither of these is necessarily true. Although these packages have been tried and tested they are often limited by their attempt to be all things to all businesses – they provide a lot of information, only some of which may be relevant to your particular organisation.

I’ve worked with a number of business owners and managers to implement performance management tools and found that a simple one-page KPI Dashboard can be extremely effective – and simple to implement. And you don’t need to be an IT expert to create one, a reasonable knowledge of Excel and an understanding of your business’ goals, drivers and soft spots is enough.

Take a simple cash business, for example a boutique retailer or services provider. Because of their cash basis the performance of these businesses is relatively easy to analyse – it’s all about cash in and cash out (liquidity) and what’s left at the end of the day (profit).

Many businesses are a variation on this, simply adding layers of complexity for diversity of products and processes. For this reason we recommend most business start with a basic KPI Dashboard focusing on:

a) Liquidity – These KPIs measure how much cash your business has available to fund itself. For example:

• Current Ratio (also called the Working Capital Ratio) compares current assets to current liabilities and measures whether or not the business has the ability to pay its shorter term liabilities. A ratio of 2:1 (i.e. $2 of assets to every $1 of liabilities) is generally considered acceptable.

• Acid Test Ratio (also called the Quick Ratio) compares current assets which are easily converted to cash to current liabilities. It’s a more stringent test which assesses whether your business can repay its current liabilities immediately. A ratio of less than 1:1 indicates that it cannot.

b) Profitability – These KPIs measure how effectively your business uses its assets and manages its expenses to generate profit. For example:

• EBITDA is ‘Earnings Before Interest, Taxes, Depreciation’ and Amortisation and is used as an indicator of cash flow. The ratio below measures the extent to which cash expenses chew up revenue.

• Net Profit is generally considered to be what’s left to put in your pocket at the end of the day. However it’s also the buffer – or safety margin – and indicates how much sales can decline before your business starts making a loss.

The above ratios provide a good starting point for any KPI Dashboard, and although they are all helpful in isolation (e.g. in identifying trends) profitability ratios provide a much greater benefit when compared to industry benchmarks. If you don’t have this information on hand consider contacting your industry body or searching the IbisWorld or Australian Bureau of Statistics websites for information.

In my next blog I’ll talk about additional measures which would be appropriate to a more complex non-cash business environment, including working capital turnover and debt/equity leveraging.

Check out the new Vantage Performance website and tell us what you think!

The mantra for scuba divers is – “Plan your Dive and Dive your Plan”. The same is true in business.

Firstly, let’s take a look at scuba diving. It’s a well-known fact that scuba diving can put you in a life threatening situation which is why you should always ‘plan your dive’.

When you first set out to dive, you review your qualifications and where you want to dive.

You then answer the fundamental questions: Do I have the time to get there, do I have the capital available to pay the costs, do I have the right equipment; and is it working?

When you get to the dive site you review and plan your dive with knowledge of local conditions, and ensure you have the experience and equipment to enjoy the experience. You then decide the direction you want to travel and how long do you want to stay under. Down you go.

But what if something changes while you’re 20 metres down and you cannot complete the planned dive?

You may consult with your dive computer or buddy, or go to your back-up dive plan. If that doesn’t work you and your buddy could abort the dive.

Let’s look at it from a business perspective now.

At Vantage we believe that before going into business, entrepreneurs should have a solid business plan that answers the following:

• What do you want to do?
• Do you have the required qualifications and expertise?
• How is your product differentiated from your competitors?
• What capital do you need to cover debtors, equipment, bonds and other costs?
• What is the market capacity for your product?
• What targeted sales do you want to achieve?
• What are the operating costs?
• What is the time frame to achieve your aim?
• Preliminary plans, budgets and cash flows.
• System to record what you have achieved and associated cost
• Back-up plan in the event of change.

We come across many businesses that have not taken these fundamental steps or, if they have been in business for some time and have been profitable, they don’t see the need for them.

It doesn’t need to be stated that they may not need these tools if everything stays the same. Unfortunately life isn’t like that. Change will happen whether you notice it or not and whether you like it or not.

So while the mantra of a scuba diver is ‘plan your dive and dive your plan’, the same is true in business. You save a lot of time and heartache by planning your business and working your plan. If that doesn’t work go to plan “B” and if that doesn’t work be prepared to exit.

Phil Jefferson is client director and non-executive chairman at Vantage Performance, an award-winning national business transformation and turnaround firm. He has more than 30 years’ experience in the corporate restructuring industry. www.vantageperformance.com.au

There are opportunities for smart SMEs to use the new Risk Management Standard to engage staff, satisfy stakeholders and identify ways to generate new business.

The existing Risk Management Standard AS/NZS 4360:2004 is replaced from 1 July 2012 by a new, and improved, Standard AS/NZS ISO 31 000:2009 (adopted from an International Standard).

For entities that operate in heavily regulated environments (such as Super Fund Trustees, Fund Managers and holders of an Australian Financial Services Licence) the changes are significant because the licensing regime operated by ASIC and APRA links the operating environment to the outgoing Risk Standard AS/NZS 4360:2004.

The changes are also significant for organisations required to maintain a focus on workplace safety (e.g. manufacturers, mining and mining services) – the upside being that application of the Standard should deliver a more robust awareness of the risks associated with operating the business.

The changes to the new Risk Standard deal with the manner in which risk management is addressed. In summary, risk management is:

• integral to organisational processes – it creates and protects value
• part of decision making but must be based on the best available information
• transparent, dynamic and responsive to change, but most importantly, is part of a business’s process of continual improvement
• not an exact science and there will be aspects that are overlooked.

What does the new Risk Standard mean for SMEs?

Risk management is not about hampering business initiatives or avoiding risk. Indeed, in the post GFC environment, awareness and management of risk is paramount to a deeper understanding of your business drivers.

Risk management should be about understanding your operating environment and finding business opportunities by leveraging parts of your business that can withstand a higher risk exposure.

This means plugging risk management into the governance framework that you use to ‘steer’ your company.

Smart SME operators have the opportunity to address the process of managing risk by focusing on governance and identifying ways to generate new business. Indeed, a recent study by Ernst & Young, Turning risks into results – Managing risk for better performance, identified that companies with mature risk management processes generated three times the EBITDA (earnings before interest, taxes, depreciation and amortisation) than companies at the bottom end of the maturity scale.

At the very least, identifying and managing risk will facilitate a more positive response from your key stakeholders.

How to implement the new Risk Standard

Generating a risk framework starts with achieving engagement from staff at all levels of the enterprise.

You could say that it requires a cultural change – in that a culture of awareness of what risks exist within the enterprise will quickly lead to employees taking ownership of the management of those risks.

Too many SMEs adopt an approach that risk management is the problem of the decision maker (i.e. the founder, the executive management team or the Board).

Management of risk starts with your staff. After all they are the ones at the coal face of daily operations and the ones who manage the risks in a business, albeit intuitively and without realising they are actively managing the risks within the enterprise.

The simplest (and most efficient) way to generate a risk profile is to workshop the concept of what risks exist within your business.

You will be staggered not only by what risks staff can identify but more importantly the ideas they will already have for how to reduce these existing risks.

Providing an opportunity to voice their ideas and take ownership of the risk management process is a positive step towards implementing the new regime and starting on the road to cultural engagement.

Once you have staff engagement, the next step is embedding a risk framework into your organisation’s governance. This will help focus decision making on a positive search for opportunities that may have been previously hidden.

The positive in all this is that understanding your risk profile and managing risk (in line with the new Risk Standard) will lead to higher staff engagement, risk mitigation, positive favour from key stakeholders and the potential to identify new business opportunities.

Our guest blogger, governance specialist Philip Anthon, is Principal of Governance Worx Pty Ltd, a leading consultant on governance, risk and compliance issues. Philip is Chairman of a number of Compliance Committees for Fund Management organisations.

What is the carbon tax and how can businesses prepare for the impact of the carbon tax?

Now that the carbon tax has been approved by the Australian Senate, many businesses are starting to question the impact it will have on their future.

On an operational level, the introduction of the carbon tax will likely increase costs including: gas/electricity, key inputs (steel, aluminum, and cement), freight/transportation services (aligned with a reduction in fuel tax credits) and general accounting/compliance.

A key and compounding impact to business profitability will be higher business operating costs, including higher wages and salaries, and increased labour turnover; a result of the mining and resources sector impact on the labour market.

What is the carbon tax?

The carbon tax will become Australian law from July 1 2012 (the Senate voted 36 to 32 in favour of the bill).

The introduction of the government’s Carbon Tax Policy will see tax on pollution emissions. The related Clean Energy Future Bills plan to cut Australia’s emissions by 20% by 2020 and 80% by 2050¹.

The carbon tax is designed to facilitate cleaner energy and positively impact the global environment.

It is expected to stimulate more environmentally sustainable energy sources (e.g. wind and solar power), with a $10 billion government fund to encourage Australians to use renewable energy sources.

How much will it cost?

A fixed price per tonne of carbon at a cost of $23 a tonne will increase over the period until 2015.

It will then be replaced by a trading scheme where the market will set the cost. The tax is expected to raise about $24.5 billion in the first three years.

The carbon tax will lead to price increases as the additional tax will be factored into pricing and shared by the community.

What can businesses do to prepare for the impact of the carbon tax?

• Strategic review to identify where to place efforts for product innovation. Businesses with high pollution emissions will need to review their product or service offering and product life cycle.
• Identify performance improvements to stabilise and/or increase the return on investments.
• Introduce productivity improvements (e.g. workflow improvement and lean six sigma methodology).
• Review organisation structure and resource allocation to identify alignment of human resources with critical business success factors.
• Attract and retain key expertise. Under climbing pay pressures, ageing workforce and mobility of Gen Y, businesses will have to compete for a ‘best in class’ workforce.

Internal Clean Energy Review

One of the key ways to prepare for the carbon tax is to conduct an Internal Clean Energy Review.

Here are some key questions businesses should ask when undertaking this review:

• What is our position within the carbon tax scheme and what costs will we incur?
• Are we eligible for any Government assistance to offset these costs?
• Will the scheme have any impact on our current investments or future acquisitions?
• What investments can be made in clean energy products?
• Will the scheme trigger any asset impairment or revaluations?

It is recommended that businesses seek specialist energy law advice to accurately capture, quantify and record all carbon tax related costs.

This is particularly important if businesses are considering passing on costs to their customers.

By preparing early, businesses can reduce the impact of the carbon tax by establishing strategies to increase performance improvement.

Vantage Performance is an award winning, national business transformation and turnaround firm with proven success in solving complex financial, operational and people performance issues. www.vantageperformance.com.au.

¹Australian Government 2012, Clean Energy Future, Canberra, viewed 20 February 2012, <http://www.cleanenergyfuture.gov.au/clean-energy-future/securing-a-clean-energy-future/>