"why businesses go bust" steve o'reilly from kpmg
TRANSCRIPT
MDBA MONTHLY BREAKFAST CLUB MAY 2015
Welcome to The MDBA Business Club Breakfast 2nd Tuesday of every month
THE MDBA VISIONTo be recognised as a professional, highly respected Business Association representing our members. We show leadership through providing relevance, benefits and value to our members and the business community ensuring growth and prosperity. We are innovative and display integrity and are trusted amongst governing bodies. The MDBA will be accountable and show a community spirit. Our members will be well respected within the business community.
MDBA MONTHLY BREAKFAST CLUB MAY 2015
Welcome to The MDBA Business Club Breakfast 2nd Tuesday of every month
OUR MISSIONThe MDBA will show leadership through effective presentation, networking opportunities and exchange of information. We will build member trust through our commitment to these crucial aspects of growing their business. MDBA will be accountable to its members offering relevant, informative topics and training. These will be designed to enhance their business and ensure business knowledge and growth.
MDBA MONTHLY BREAKFAST CLUB MAY 2015
AGENDA
7AM ARRIVE – COFFEE AND NETWORK7.30AM – CEO WELCOME AND UPDATE.7.40AM – ATTENDEES INTRO7.45AM TO 8AM – CASUAL NETWORKING8AM –Steve O’Reilly8.45AM – Q AND A 9AM FINISH AND CASUAL NETWORKING
The Malaga and Districts Business Association is very proud to be partnering with these wonderful sponsors.
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MDBA MONTHLY BREAKFAST CLUB MAY 2015
Update on what's happening at the MDBA
ACKNOWLEDGE MDBA BOARD MEMBERS NEWSLETTER – Advertising details on our web site New members get a free half page advert as part of the membership WE WANT TO GROW OUR MEMBERSHIP AND ATTENDANCE AT THESE BREAKFASTS –
ENCOURAGE ATTENDEES TO REFER NEW MEMBERS TO CLIVE REMIND MEMBERS OF SUNDOWNERS Finalising our strategy document for 2015/16 Canberra visIt The quality of our internet connections here in Malaga The current plan of rollout of the NBN – NEWSPAPER ARTICLE What problems do businesses face in Malaga regarding communications (Boardband and
Telephone) Sponsorship opportunities are now listed on our website Business awards 2015
MDBA MONTHLY BREAKFAST CLUB MAY 2015
FacilitatorSteve O’Reilly, KPMG Director Private Enterprise
Steve works collaboratively with clients providing tax, accounting and compliance offerings. Services are tailored to meet the unique challenges of the mid-tier market and to provide business owners with innovative solutions. With over 10 years’ experience, Steve’s portfolio spans a range of industries where he is adept in the preparation of special purpose and general purpose financial statements. He also has significant experience as a director of not-for-profit entities, including roles with the Fremantle Dockers Football Club and Santa Maria College.
11© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Overview
• Common reasons for insolvency
• Fraud prevention and signs
12© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent
Reason One
Assessing counterparty risk
Aligned to one key client
How resilient is the business
Bad debts/delayed collection
External party to review client
13© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent – cont’d
Reason Two
Aligning HP payments with contracts (as best you can)
Gear up for new contract
Alignment of HPs to the terms of a contract
Will the contract conclude and HP payments still be due and payable?
Survival of business
Resilience of balance sheet
14© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
Reason Three
Job costing
One of the biggest risk areas
One bad estimation
Get the right estimators
Monitoring of costs
How accurate is the job costing system?
15© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
Reason Four
Poor quality of reporting
Quality of management reporting
Timeliness
What are you focusing on?
Know your balance sheet
Budgeting
Strategy
16© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
Three key areas
Effective use of forecasting tools
Rapid Growth“Company maker or company breaker”
Managing your banking
relationships
Source: Warren Buffett
“Only when the tide goes out do you discover who's been swimming naked”
17© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent – cont’d
Reason Five
Sustainable Growth – intelligent growth
Growth by acquisition, or organically
The risks
Processes – step back
18© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Reason Six
Poor cash flow forecasting
Three way forecasting
“Telling the future by looking at the past assumes that conditions remain constant. This is like driving a car looking in the rear-view mirror” Source: Anon
Historical financials statements
Forecasts
Common reasons why a business becomes insolvent– cont’d
19© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
Poor cash flow forecasting – cont’d
Understanding the key drivers
Incorrect assumptions
Stress test and sensitivity analysis
Include all commitments
Plan for lump sum and tax payments
Working capital management (timing and value)
Filed and forgotten
“My problem lies in reconciling my gross habits with my net income”.-- Errol Flynn, Tasmanian actor --
20© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Being on the front foot
Be proactive
What are the indicators of stress?
Manage your banking relationship
21© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
■ Revenue declines
■ Cost spikes
■ Profitability fluctuations
■ Banking covenants
■ Queries from financiers
■ Timing on accounts
■ Capital expenditure
■ Building of creditors
■ Slow collection of debtors
■ Regulatory environment
■ Supply constraints
■ High labour costs
■ Margin erosion
■ Disputes
■ Senior management or board changes
■ Failure to complete divestment, equity raising or other strategic transactions
■ Lack of direction
■ Lack of forecasts
■ Distressed sale of assets
Financial indicators Operational indicators Other indicators
Indicators of stress in a business
Financial indicators
22© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Common reasons why a business becomes insolvent– cont’d
Managing banking relationships
■ Business partner
■ Open dialogue
■ When presenting problems – Be prepared
■ Advisors can add significant value in developing and delivering action plans to lenders
Key considerations
■ How well does your banker know your business?
■ Is there any planned debt reductions or unfunded expenditure planned?
■ Is there sufficient headroom against covenants now and at future review dates?
■ Are any customers, suppliers or financial stakeholders known to be in distress?
Things to do now
■ Be on the front foot with your financier when business issues arise
■ Develop a contingency plan (Plan B)■ Plan for longer lead times when dealing
with debt■ Strengthen existing financier relationships■ Monitor compliance with covenants
(current and forecast)
23© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Fraud
What is fraud?
“Dishonest activity causing actual or potential financial loss to any person or entity including theft of moneys or other property by
employees or persons external to the entity and where deception is used at the time, immediately before or immediately
following the activity.”
24© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Some facts on fraud
25© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Fraud – cont’d
Examples of fraud
Theft of assets
Theft of inventory
False invoicing/timesheets
Theft of cash
Diversion of receivables
Expenses fraud
Theft of intellectual property or confidential information
26© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Fraud – cont’d
Detection of fraud
Leave
Double invoicing
Cross checking
Unusual amounts or invoices
Use of equipment for private purposes
No one size fits all
27© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Fraud
Fraud prevention
Check references
Tone at the Top
Training
Rotation of jobs
Evaluation of internal controls
28© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Presenter details
Steve O’Reilly Director, Private Enterprise KPMG
Phone: (08) 9278 2131 Email: [email protected]
29© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Disclaimer
■ This presentation has been prepared without taking account of the objectives, financial situation or needs of any particular business or individual. Before acting on the information in this presentation you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice
31© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Small business tax concessions- Federal Budget Update
The main changes
Reduction in tax rate to 28.5% for companies
Additional 5% tax cut up to $1,000 for unincorporated entities
Immediate write off- assets costing < $20,000
Assets > $20,000 depreciated at accelerated rates
32© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Points for consideration
Considerations to best utilise these new concessions
Am I eligible for the concessions?
Carrying on a business?
Turnover including any connected entities less than $2 million
The three tests of a small business entity
Installed and ready for use
Minimising cash flow impact
R& D cash refund
33© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Points for consideration
Exemptions from the concessions
Private use of assets
Exemptions from the concessions
Horticultural plants
Capital works
Assets allocated to a low-value or software depreciation pool
Primary production assets
Assets leased out to another party on a depreciating asset leaseIn most cases, specific depreciation rules apply to these assets.