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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

Business Blog No 26 – Succession and Exit Strategy

When you start planning to start your own business, you should be also planning how you will exit that business. Starting your own business is perhaps your biggest financial investment, along with your home, and you will want to ensure that the return on this investment is maximised. Will you sell your business through a business broker when the time is right? Will you plan to hand the business onto your children? Will you have a successor ready to take over when you are ready to exit? Or will you simply close the doors and leave it all behind? The ironic thing is that recent surveys indicate that less than half of surveyed SME owners have a succession or exit plan in place.

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Your exit strategy is a key issue because you want to maximise the value of your business and get the timing right and make sure you don’t have to delay your retirement. An interesting statistic is that the average age of a SME owner is 56! Our ageing population means more and more businesses will come up for sale meaning by pure supply-demand economics, business sale prices will fall. This is particularly relevant as more baby boomers head towards retirement and are looking to exit their businesses.

Before exiting your business, you need to document processes and formalise customer, supplier and employee relationships and ensure that the business is not dependent on you for it to succeed. The business’ profits need to be sustainable in a potential purchasers eyes. Nobody will be interested in buying or running a business which collapses following your exit if you are in reality the business.

It is generally accepted that it takes 3 to 5 years to have a business ‘sale ready’ so don’t delay developing your exit strategy. You want to be ready in case an unexpected offer to buy your business materialises.

Due Diligence

Any potential purchaser of your business will undertake a due diligence process which will cover all aspects of your business to ensure it is legitimate and sustainable and that the numbers presented stand scrutiny. From that due diligence process, a potential buyer will put a value on the business most likely a profit multiple ratio depending on the industry type, scale of business, concentration of customers and key suppliers and the risk profile of the business. Profit multiples used to value a business are falling in recent times illustrating that it is a buyers market when it comes to business sales.

Another option is to put a board in place prior to putting your business up for sale. A board can add value to your business and also make it more saleable and can present an opportunity for you to stay involved as a board member if the new owner so desires (and you too)!

So ensure you have your succession and exit strategy in place as a foundation for business success.

Ross – Virtual/Part-Time CFO

Business Blog No 25 – Casuals and Redundancy

Casual hours to count towards redundancy payouts

Last week, the full bench of the Fair Work Commission resolved that periods of regular casual employment will now be counted towards redundancy entitlement calculations. The advantage to employers in ‘casualising’ their workforce is slowly being eroded away, and this latest decision is another step in that direction.

The decision means that workers who start as casuals before their positions become permanent, either full-time or part-time, will have their full length of service recognised in the calculation of their final redundancy pay out.

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An appeal by the Australian Manufacturing Workers’ Union was upheld reversing a decision made earlier in the year which allowed a ship building company to only count the period of permanent employment in the calculation of redundancy payments.

To be included in the calculation of years of continuous service, the period of ‘regular and systemic casual employment’ must be part of the period of employment from which an employee is being made redundant. There can be no break between the period of regular and systemic casual employment and the transition to permanent employment.

The decision does not apply to employees who were casuals when their employment was terminated however.

If you are in this situation, you should talk to your Industrial Relations advisor to ensure you are calculating redundancy payouts correctly.

Ross – Virtual/Part-Time CFO

Business Blog No 24 – Startup Tax incentive

Did you know that on July 1st, 2016 some new tax incentives came into force for start-up investors?

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These are new tax incentives are a key part of the federal government’s $1billion innovation agenda to encourage innovation and investment in early stage entrepreneurship in the start-up sector. This is designed to encourage early stage investment and funding in such entities which have limited access to traditional sources of funds at the development phase of their start-up journey. It is estimated that over 4000 early-stage companies are missing out on equity finance each year. To address this, the government is targeting $1 billion to be raised in the early years of the new tax incentives.

The key points of the new tax incentives are that they offer up-front tax offsets of 20% to a maximum $200k, plus 10year capital gains tax exemptions for eligible investors in eligible entities.

A startup entity that qualifies for such treatment for investors is defined as an Early Stage Innovation Company (ESIC). This basically means that the entity has been incorporated less than 3years ago, has income of less than $200k and costs of less than $1million for the financial year ending June 30, 2016, and is developing new or significantly improved innovations with the purpose of commercialisation.

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If you think you might be eligible for such incentives as a startup investor or want to use the legislation to encourage investment in your startup, speak to your tax accountant.

Ross – Virtual/Part-Time CFO

Business Blog No 23 – The Cloud

Cloud computing is not new. We have all used eBay, Google, Facebook, Gmail etc. which are all cloud based. The problem is that the word ‘cloud’ is a misnomer and perhaps makes us feel that our data is in ‘outer-space’ somewhere. All cloud hosting companies actually run huge physical servers in big data centres across the globe to store the data.

Just like plugging into a grid to get access to what a company or individual wants and needs, ‘cloud’ is a subscription based pay as you go service where you don’t own the infrastructure or software but rather subscribe to access it. There are various versions of the ‘cloud’ including Software as a Service (SaaS), which means using cloud based software solutions, and Data Protection as a Service (DPaaS) which means replicating and backing up data to the cloud or to a third party disaster recovery provider.

Being in the ‘cloud’ does have many ‘silver linings’ such as allowing flexibility and giving you access to the latest technology from anywhere there is an internet connection. A start-up can also access the same technology as a big corporate. A key advantage of moving to the cloud is the cost savings from no longer needing to purchase hardware infrastructure and software licenses; instead you pay a regular monthly subscription fee. This also converts a capital cost to a deductible expense. Going to the cloud can also facilitate efficiency improvements and cost savings freeing up resources. It also enables easy sharing of data and financials and is a real time one view of the truth.

There are risks of going to the cloud and these include the risk of data loss, security risks and access issues being out of your control. So good data security and backup procedures remain key. It is however argued that cyber security risks are actually reduced by sitting in the cloud as the companies that provide cloud services invest more money in security than individual companies would and they have specialists managing the cyber-security matters. Privacy Laws may come also into play. A solution to this is for customers’ personal data not to be stored in the cloud, allowing only business process tools to sit in the cloud.

A key step before moving to the cloud is to firstly assess what the real business requirements are and what are the objectives of your IT needs and your IT budget itself.

Look for a cloud service provider who has achieved the internationally recognised ASAE 3402 certification and that sound SLA’s (Service Level Agreements) are in place with these providers and that issues of locking-in and transferability are covered. Naturally get some customer references to validate the providers claims.

It might mean dipping your toe in the water with things such as Microsoft Office 365, Cloud-based Antivirus software, payroll systems or accounting software eg MYOB. A staged approach of moving to the cloud and ensuring adequate training for staff ensures your business won’t be overwhelmed by taking on too much at once.

From our survey earlier in the year, a surprising result was the apparent slow uptake of cloud based IT solutions. For the vast majority of the survey respondents, IT systems are still kept in-house.

From my perspective, cloud solutions are the future and are great productivity and cost saving opportunities. Converting your in-house software platforms (and the associated reduction in necessary infrastructure costs and maintenance) to a cloud based solution by a subscription model is recommended. Beware of IT support providers who advise clients to avoid going to the cloud due to their own self interests. To take the mystery out of cloud computing, just remember all our personal emails have always sat on a server somewhere in the “cloud” until we retrieved them and that hasn’t seemed to have bothered us…

Ross – Virtual/Part-Time CFO

Business Blog No 22 – SuperStream

SuperStream is a government initiative which details the way businesses are to pay employee superannuation contributions to superannuation funds. Businesses with 20 or more employees are already required to use the system, with small businesses with 19 or fewer employees needing to put the system in place. The original deadline for small businesses to be ‘Superstreamed’ was June 30, 2016, but the ATO are showing flexibility by extending this deadline to October 28, 2016. From my perspective, I highly recommend you cross over to the new regime as soon as possible as there are productivity and efficiency improvements to be gained.

SuperStream transmits money and information in a consistent format across the super system between employers, funds, service providers and the ATO in a single transaction, even if you deal with multiple super funds. The data is linked to the payment by a unique payment reference number.

How your business becomes SuperStream compliant is your choice. Options include using a compliant payroll system, using a super fund’s online system, using a messaging portal or using a super clearing house like the ATO’s Small Business Super Clearing House (SBSCH). For your information, the ATO’s SBSCH is a free, optional service for small business with 19 or fewer employees.

You don’t need to use SuperStream for contributions to your own self-managed super fund (SMSF) if you are an employee of your family business, or if you are a sole trader and you make personal superannuation contributions to a super fund for yourself. For these types of contributions you just keep using your previous processes.

If you need help getting SuperStream compliant, don’t hesitate to contact us on (03) 9554-3128.

Ross – Virtual/Part-Time CFO

Business Blog No 21 – Budget – It’s a Wrap!

Last week, you completed the last piece of your budget financials for the new financial year, your Cashflow Budget.

Congratulations on completing your 3 months budget creation journey! I hope you have learnt a few things along the way.

You should now have a phased Profit and Loss budget, a budget Balance Sheet and a budget Cashflow Statement.


Now that you have created these budgets for your business, you need to assign responsibility and accountability for components of the budgets to personnel in your organisation. I would suggest the following as an indicative responsibility assignment:-

Profit and Loss Budget

  • Sales Budget responsibility – Sales Manager
  • Distribution Overheads responsibility – Distribution Manager
  • Selling Overheads responsibility – Sales Manager
  • Administration Overheads responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
  • If you are a manufacturer, your manufacturing budget – including direct materials, direct labour, direct overheads and Production Overheads responsibility – Production Manager
  • If you are a distribution company, your cost of sales budget responsibility – Purchasing Manager
  • If you are a service entity, your direct cost of services responsibility – Operations Manager.

Balance Sheet Budget

  • Accounts Receivable Budget responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
  • Inventory – Raw Materials responsibility – Purchasing Manager; Work in Progress and Finished Goods responsibility – Production Manager.
  • Accounts Payable Budget responsibility – Accountant, Finance Manager or Virtual Part Time CFO


Once you have assigned responsibility for budget areas, you need to ensure the relevant personnel are accountable for their budget areas, by measuring and reporting actual numbers against the budgets every month. This will require the development of a reporting structure and comparison reports. These reports and numbers should form part of your monthly review meeting focussing on exceptions that need action, explanation or further investigation. Such reports and analysis can be prepared by the Accountant, Finance Manager or Virtual Part Time CFO to ensure independence and impartiality.


Use this week to assign responsibility for budget targets and develop a reporting and accountability structure so each month you can measure and compare the progress of your actual numbers against your budget numbers. Once you start measuring things, it is amazing how quickly improvement can actually come from the simple measuring process itself, as well as the identification of improvements opportunities.

All the best for a prosperous and successful financial year! As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we will move away from the budget process and onto some new topics to provide a sound foundation for business success.

Ross – Virtual Part-Time CFO

Business Blog No 20 – Budget CashFlow Statement

Last week, you completed a budget Balance Sheet for the next financial year.

This week, we will look at another key budget document: your budget Cashflow Statement. This is an important component of your budget because it will identify your budgeted cash movements and cash position. Knowing where you are going to be in terms of your money is critical so plans can be made to supplement cash if required, manage cash requirements and invest if surplus cash availability is your outcome.

The beauty of creating a budget Cashflow Statement in excel is that when it is properly connected to your budget Profit & Loss (P&L) and budget Balance Sheet, the numbers for the budget cashflow statement should just automatically flow through.

Refer Figure 1 below as an example of a simple fictitious budget Cashflow Statement which is linked to the budget templates presented in previous newsletters. Column A represents broad categories of your Cashflow Statement and Column B is your budget cash movements for each of those categories.

Working through each of the key cash flow items in turn as follows:-

  • Profit and Loss After Tax – refer Row 1 below – this amount is directly transferred from your budget P&L. Note this figure includes non-cash items such as depreciation. Depreciation of Fixed Assets (refer Row 2 below) needs to be added back from your budget P&L depreciation expense so as to determine Cash Inflow(Outflow) from Operation (refer Row 3 below).
  • Inventory Movements – refer Row 4 below – this is the difference between your actual closing inventory balance from prior year and the budget inventory closing balance in your balance sheet. A positive number means you are reducing inventories which effectively impacts cash favourably.
  • Receivables/Prepayments Movements – refer Row 5 below – as with the inventory above, this figure represents the difference between prior year actual closing balance and budget current year budget closing balance in your balance sheet. A positive number means you are reducing Receivables which effectively impacts cash favourably.
  • Accounts Payable Movements – refer Row 6 below – this figure represents the difference between prior year actual closing balance and budget current year budget closing balance in your balance sheet. A positive number means you are increasing Payables which effectively impacts cash favourably.
  • Non-Current Movements – refer Rows 8 and 9 below – as above, the figures represent the difference between prior year actual closing balance and budget current year budget closing balance in those balance sheet categories. A positive number means you are impacting cash favourably.
  • Fixed Assets movements – refer Rows 11 to 14 below – the figures in this section represent budgeted cash movements in your Fixed Assets such as Capital Expenditure and/or Proceeds from Sale of Assets. A check on this number is done by subtracting budget depreciation expense from closing actual Fixed Assets written-down-value and comparing it to budget closing fixed assets.
  • Shareholders Equity movements – refer Rows 15 and 16 below – this is usually zero but if owners are contributing more capital to the business, it needs to be factored into this section.
  • Manual Adjustments – refer Row 17 below – I don’t like using this section as it is a ‘plug’ to make the Cashflow Statement balance. Only use it if there are small roundings.
  • Net Cash Generated – refer Row 18 below – summing all of the above you get to a figure showing your net movement in cash. Make sure it makes sense. If it is a negative figure, do you need to revisit either your Balance Sheet or Profit and Loss statements? Do we need to curtail Capital Spending or more aggressively target customer collections?
  • Cash Funding – refer Rows 19 to 22 – picking up opening and closing budget Bank/loan balances from your Balance Sheet, you will identify how you are budgeting to fund cash shortfalls or allocate cash surpluses. The total in Row 22 should equal the value shown in Row 18.

Do you need to organise funding in advance for your business to remain solvent or have you got surplus funds that can be invested to generate a return above bank interest?

If there is a seasonality factor to your business, you should look at doing a monthly phased budget Cashflow Statement so you can identify the peaks and troughs of your cashflow needs and plan ahead for any such requirements.

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Use this week to develop your budget Cashflow Statement and hence identify budget cashflow movements in and out of your business, sources of cashflow in your business and identify future Bank/Funding requirements as part of your budget process.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Ross – Virtual CFO

Business Blog No 19 Budget – Balance Sheet

Last week, you finalised phasing your Profit and Loss (P&L) budget for the next financial year.

This week, we will look at another key budget document: your budget balance sheet. This is an important component of your budget because it will drive one of your key strategic objectives as noted in Blog 7: Cash!

Refer Figure 1 below as an example of a simple fictitious Balance Sheet where Column A represents broad categories of your Balance Sheet, Column B is your current actual balance sheet values and Column C is your budget balance sheet for the forth coming financial year.

Working through each of the key balance sheet items in turn with your current actual balance sheet and ratios as a starting point:-

  • Accounts Receivable/Debtors – refer Row 1 below – you should budget an improvement in your debtors days outstanding of at least 50% and hopefully it sits below 60days.
  • Inventory – refer Row 2 below – as with the Accounts Receivable, you should budget an improvement in your inventory days held of at least 5% and hopefully it is below 90days.
  • Accounts Payable/Creditors – refer Row 3 below – the goal is to increase the number of days; which is opposite pattern to Debtors/Inventory. It should mirror the Debtors days as a target but for budgeting purposes let’s assume you increase payable days by 5% for your budget.

As an illustration, if your Working Capital (Debtors plus Inventory less Creditors) is $100k and you improve each of Debtors, Inventory and Creditors by 5%, that equates to an extra $5k in cash to your business.

  • Fixed Assets – refer Row 5 below starting with from your closing down written value of Fixed Assets, add your additions and subtract your disposals and subtract your depreciation expense to calculate a budget Fixed Assets values.
  • Leave provisions (Annual Leave and Long Service Leave) – refer Row 6 below. Using your closing actual leave provision values and assuming that the budget is for all employees to take their 4 weeks Annual Leave, the Budget Annual Leave provision will only increase by pay rate increases. Long Service Leave is a little more difficult as the entitlement and taking of long service leave needs more detailed analysis, sometimes at an individual level.
  • Company Tax Payable/GST – refer Row 7 below. These amounts payable to the government should be estimated for budget purposes.
  • Miscellaneous Provisions/Prepayments – budgeting for these general accruals and prepayments should be fairly straight forward, use closing values as a guide to calculate these.

Summing up all of the above gives you your Funds Employed values for both actual and your budget. Refer Row 9 below. Funds employed gives you the value your net assets excluding bank/loans, of the business. The way these net assets have been funded through shareholders equity, loans and bank balances is totalled up at Row 14 below. Note that as a Balance Sheet principle, it needs to balance whereby row 9 is to equal row 14.

The Shareholders Equity section of your Balance Sheet is where your accumulated profits and capital amounts reside. Your P&L Budget Profit After Tax will transfer into this section Refer Row 10.

The ‘magic’ number/s that drops out to balance your budget balance sheet are your loan/bank balance (Rows 12 and 13 below). This will give you the picture of where the financing of your business is projected to be based on your P&L Budget and the components of your budgeted Balance Sheet.

The question/s might be, do you need to organise additional funding? Will you have excess funds available for investment? Do you need to review your capital expenditure?

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Use this week to develop your budget Balance Sheet and hence identify Bank/Funding requirements as part of your budget process.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Ross – Virtual CFO