In this Issue

September 2010 Newsletter

From the desk of our CEO, Andrew Blunden

Another month, another Federal Parliament...and the Australian economy continues to grow apace. But together with this continued growth:

- interest rates are set to increase  - putting pressure on business and home-owners alike; 
the Australian dollar continues to rise, placing further burdens on our export industries by making our products less competitive overseas; and
bank lending to business continues to slow down as banks favour home loans over business loans.

But the real challenge for Australian businesses is to recognise that these trends and expectations can also reverse overnight. Australia's growth may falter if China slows; the Australian dollar may reverse again if the Reserve Bank starts selling Australian dollars; and the uncertain global financial situation can impact our local interest rates at any time.

Businesses always need to remain vigilant to ensure that they can react to any shifts in economic trends. Many businesses suffered terminally over the last two years simply because they 'bet their house' on the wrong economic trend. They may have borrowed too heavily (expecting interest rates to remain low); cut too many good staff (when they thought the economy would not recover and that the skills shortage was over); or relied too heavily on stable currency exchange rates (and made costly currency hedging decisions).

It was these strategies that sent many of these businesses to the liquidators. But this outcome could have been averted. In fact, the GFC is now being used by many failed businesses as a scapegoat for their real underlying problems as this month's feature article shows. In many cases it was the inability of these businesses to plan, prepare for, and manage the changes in economic trends that caused their failure.

The lesson for business is that you need to remain flexible and vigilant. This means modelling different economic scenarios (what happens to your business if the Aussie dollar falls again, what happens if interest rates increase, what happens if your bank cancels your overdraft facility etc). It means having a plan in place should the economic trends change. It means knowing when to, and having the discipline to, change a strategy that is clearly not working. And it means having performance indicators in place that can warn you when you need to change strategy. Simply throwing more good money after bad, without a change in strategy and tactics, is never the best answer.

As Robert Baden-Powell (the founder of the Boy Scout movement) said: "Be Prepared... you must prepare yourself by previously thinking out and practicing how to act given any accident or emergency so that you are never taken by surprise."

Best regards and good luck!     Andrew

Recent lessons from the Aussie turnaround industry

When businesses face hard times, an alternative to the administrator is the turnaround specialist. These professionals seek to restore value to struggling enterprises and thereby avoid business failure. And their insights are worth gold!

A "Survey of Australian Turnaround Activity" was recently published by 333-Turnaround Management Association. This survey of 117 respondents produced some valuable data on the causes, challenges, responses and success of corporate turnaround activity in Australia during the GFC. In particular, the survey aimed to gain a better understanding of what turnaround strategies work and what doesn't work.

60% of respondents predicted that 2011 would be an even busier time for the turnaround industry. The greatest risks to the Australian economy were, not surprisingly, global and overseas factors including:

  • Another episode of global financial crisis             56%
  • China economic shock                                             53%
  • US weakness                                                             49%
  • European Union weakness                                     26%

Of the turnarounds analysed, the industries represented are:

  • Industrial and manufacturing                                  24%
  • Property and construction                                        21%
  • Retail and consumer services                               17%

The average revenue of these companies was $150 million and the average time taken to turn the business around was 12 months (with 29% needing 24+ months assistance). These are not small companies, and the solutions don't happen overnight.

So what caused these businesses to fail in the first place? Was it due to falling sales, high cost structures or competition? The three largest causes of distress were actually:

  1. Management issues                                              56%
  2. Unsustainable debt levels                                    51%
  3. Inadequate financial controls                              46%

These causes are primarily internal and controllable, as opposed to external general causes such as a drop in demand. It was found that if businesses can identify and address these issues, they can generally emerge from their difficulties. Of course, the greatest barriers to a successful turnaround were found to be:

  1. Management capability; and
  2. Reluctance to take action/make changes

Adrian Loader, President of the Australian Turnaround Management Association said: "Businesses are already operating in a tough economic environment and things are likely to get worse before they get better. Now is the time for Australian businesses to be extra vigilant in how they operate, concentrating on the basics, and most importantly if they have concerns get specialist help immediately. Early intervention is the key to survival."

Having assisted many businesses source part-time or contract Accountants, Chief Financial Officers and other management expertise during the last five years, Part Time Professionals couldn't agree more. If you would like to discuss how we can help your business source a great accountant, financial controller, CFO or other executive to give your management team a REAL boost, give us a call on 1300 79 1946. Our CFO Network represents over 300 executives and professionals seeking part time and contract roles throughout Australia.

The bottom line...

Although perhaps a bit early for a turnaround specialist, VirginBlue's recent computer problems with its Navitaire reservation system has now affected many thousands of business and personal travellers.

But you probably can't blame VirginBlue - the Navitaire promotional material certainly reads very well!

Of course, for the avid viewer of Little Britain, this should all come as no surprise! Perhaps we should all just stay at home! Just click here to see why!


About Part Time Professionals

Part Time Professionals™ is wholly owned and operated in Australia. Our principals together have over 40 years experience in public accounting and as CFO's and Directors in multiple companies - both listed and unlisted. They are members of the Institute of Chartered Accountants in Australia, CPA Australia, the National Tax Agents Association, the Australian Institute of Company Directors, the Financial Executives Institute and the National Institute of Accountants.

Our aim is to help companies source the most experienced CFO, executive and corporate accounting talent, in the most cost-effective way!

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