Monthly Archives: September 2016

Business Blog No 30 – Trade Show

I recently attended the Fine Foods Trade Expo at the Melbourne Convention and Exhibition Centre on a cold wet Melbourne Day. You might be wondering what an accountant is doing at such a trade show event?

I find attending such an event gives me a perspective and update on the state of such a key industry. It is a source of ideas and inspiration for me and my clients and, naturally, a place to network with prospective customers.

Officially titled the ‘Fine Food Australia: The 32nd Australian International Food & Drink Exhibition’, the annual four-day trade only event alternates yearly between Melbourne and Sydney.

Over 1,000 exhibitors and 25,000 visitors salivated at the array of available samples alongside over 3,500 interstate buyers and over 700 international buyers from around 50 countries. The 30k SqM of exhibition space was split into 10 smaller zones:- Catering Equipment, Retail Equipment, Hospitality Equipment, Packaging, Baking Food, Fine Food, Meat & Seafood, Free From/ Natural Products, Dairy World, Drinks World and Flavours of the World (International Pavilions).

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Regular demonstrations and educational presentations were in evidence along with the usual networking opportunities. Previous Fine Food Show statistics from the 2014 Melbourne Exhibition identified $90k+ in sales leads were generated from an average 100+ leads for each exhibitor. At $3.5k for a 3metre by 3metre booth, the return on investment is sound. Even if you are not directly in the Food business, it might present an opportunity to think outside the box and figure out how you can get involved in this growing agribusiness sector. Packaging companies, ingredient producers, transport entities, shop-fitters etc. should consider attending.

My Take Out

My take-out and thought provoker to you is ‘Have you considered taking out a stand or booth at trade events or expo’s?’ It might be worth considering as it could present an opportunity to find new customers or expand your business networks.

Do you go to any trade shows or expo’s as a visitor just to get some differing incites, trends and ideas you might apply to your own business to provide a sound foundation for business success?

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Ross – Billson Advisory

Business Blog No 29 – Transfer Pricing

We have all heard the allegations in the media of multi-national entities (MNE) diverting profits away from Australia to lower tax jurisdictions thereby reducing the global tax bill of such MNE’s. Entities such as Google and Apple have been at the forefront of allegations of improper use transfer pricing practices.

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Entities can divert profits using a variety of means. The simplest way of doing this is to overstate the cost of imported products from an overseas MNE subsidiary thereby reducing the profits made by the MNE’s Australian subsidiary. This artificially increases the profits in the MNE supplier country which is in a lower tax regime than the Australian subsidiary thereby reducing the overall tax burden for the MNE. Other more complex methods are catching the ATO’s eye with two announcements last week by the ATO putting entities on notice who try to use a partnership structure to avoid the law, or who use circular financing arrangements to transfer income overseas but keep deductions in Australia.

Organisation of Economic Co-Operation and Development (OECD) Transfer Pricing Actions

The OECD’s Base Erosion and Profit Shifting (BEPS) action plan is the foundation of global transfer pricing practices and was released late 2015. It focuses on taxing profits where consumers live. This puts the OECD at odds with US MNE’s who assert that their global income is essentially American income derived by a US company and that it will decide if, how and when it will be taxed it, irrespective of the locations of end consumers.

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Australian Actions on Transfer Pricing

The Australian Government has already enacted the Multinational Anti Avoidance Law (MAAL) to ensure that large multinational companies operating in Australia are subject to Australian tax laws. The larger MNE’s subject to these provisions have global revenue of $1billion+. In addition, the Government’s 2016 Budget introduced a new Diverted Profits Tax, a 40 per cent penalty rate of tax on large MNE’s that attempt to shift their Australian profits offshore to avoid paying tax. The combined MAAL and the Diverted Profits Tax are expected to raise around $650 million over four years.

For SME’s in Australia, the ATO has released ‘Simplifying Transfer Pricing Record Keeping’ for entities whose Australian income is below $25million. It doesn’t alleviate obligations under the legislation, but allows such entities to self-assess and simplify what would otherwise potentially be costly compliance requirements.

Documenting how costs and prices are determined as well as the decision making process followed in setting cross border pricing remains key. Benchmarking analysis and the arms-length principles remain best options for ensuring compliance.

The new transfer pricing regime remains largely untested in the courts, so please ensure you get good advice on the documentation requirements and methodology used in setting cross border prices if you operate within a structure whereby related entities are located both here and overseas and these entities transact with each other.

Ross – Billson Advisory

Business Blog No 28 – Franchising

I recently went to the Franchising Expo in Melbourne at the Exhibition Centre to listen to the latest developments in the industry. The sector is governed by the ACCC’s Franchising Code of Conduct.

As a bit of background, there are over 1,000 franchise networks in Australia employing almost half a million people so franchises are a significant part of the economy. Franchises are everywhere, ranging from the iconic McDonalds, the stable of “Jims” franchises through to more recent franchise models such as HR services for business.

Advantages and Disadvantages

Franchising is a 2-sided relationship with the franchisor entrusting their brand and reputation to you as the franchisee.   Franchise fees range between $5k and $1miilion plus ongoing monthly fees.

The advantage of taking out a franchise is that you have access to a ready-made business brand, support, infrastructure, marketing, mentoring and systems so you are ‘not on your own’.

Whilst I acknowledge franchising is not for everyone, it certainly does increase your chance of business success with far fewer businesses failing than traditional owner-operator businesses in percentage terms.

I would suggest that before you consider whether Franchising is an option for you, reflect on your motivations and how you prefer operate as a business person.

If you think you are ‘buying’ a job or creating an ‘annuity’, I would suggest you think carefully as buying a franchise is a big commitment and investment and it has all the risks of business, so is not a guaranteed recipe for success nor is it a cruisy way to make a living.

Do you like structure and procedures or do you like to do your own thing? If you don’t like following set procedures and would rather be a genuine entrepreneur, then perhaps franchising is not for you.

blog-27-franchiseFigure 1 Hang on, who is this speaking…

Franchising Due Diligence

One of the key obligations under the Franchising Code is the obligation of the franchisor to give prospective franchisees a disclosure document along with a copy of the franchise agreement. Please ensure you get a good lawyer to review these documents as they can be quite complex.

Before you commit to a franchise agreement, do your due diligence and ensure you talk to existing franchisees as a key part of the evaluation process. Do your numbers carefully, and as I keep saying in these blogs, make sure the 3 key strategic objectives of profit, cashflow and return on investment targets reflect the risk you are taking. Do a pre-purchase review with a good accountant and complete your business plan.

Don’t rush any decision to join a franchise. Ensure you treat this decision as you would any business investment decision and have a sound strategy in place as a foundation for your franchise business success!

Ross – Billson Advisory

Business Blog No 27 – StartUp Success – Uber?

The Uber Start-Up Story

I am sure all of us have heard of Uber, the ride-sharing start-up service disrupting the traditional taxi services industry.

What you may not have heard is that globally Uber reportedly lost US$1.2billion (that is BILLION, not million) in the first half of 2016 and the losses are continuing to grow! Does that mean the “sharing economy bubble is bursting” and that the US$69million valuation of Uber is baseless?

When will Uber make a profit and what is in their strategic plan to get to profit? Are they ‘investing’ in the future rather than ‘making losses’? What will it take to make money in the longer term? In my view they will have to increase prices and fees to become a sustainable business at some point. The likelihood of having fewer taxis on the road driven out by competition of a lower cost disrupting business which may then be followed by hikes in prices by Uber is a scenario I see happening, particularly if the taxi industry cannot get its act into gear.

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If a business is not profitable in the medium to longer term, it impacts far more people than just shareholders and investors. There are employees, customers, suppliers, banks and the overall economic impacts that can suffer if a business fails.

What you may not have heard is that Google launched a pilot ride-sharing program in May in California to directly compete with Uber. It is clear that the disruptor Uber is now being disrupted by Google so nothing stays the same for long! Having said that, it is clear that Uber have created a new way of getting from point A to point B and that as such, ride sharing is here to stay. The question is in what form will that take in the future?

Questions to consider?

This leads me to the question; what is your business model? Is it sustainable? Is a profit objective at the core of your strategy? If you are a start-up are you growing too quickly and not managing that growth? If your business model is to disrupt an existing industry via the use of technology or other means, can you and your financiers survive the initial pain of losing money to build your market position?

What’s the take away from all this? Ensure you have a sound strategy in place as a foundation for your business success!

Ross – Virtual/Part-Time CFO