Grow Your Business January 2008

Dear Business Leaders,

Welcome to the January edition of the Xenex Group Newsletter. 

You have been sent this as a client or associate of Xenex Group. We have provided an interesting mix of articles on management, leadership and business process, for senior executives and business owners to better manage their people and resources. As January is a popular time for annual strategic planning for most business leaders, we have provided a select few articles relevant to your 2008 planning activities. We hope you find these articles sufficiently stimulating for you to take action within your business.

Best regards, 

Daniel O'Connor.
Consultant Principal.

Is January a Good Time to Plan your 2008?

Traditionally in Australia, most employees take their holidays in January, leaving an excellent opportunity for their managers to plan the program for 2008. In most instances where a business is experiencing good to excellent times, business leaders will accept "business as usual" as an appropriate strategy and close out their planning activities for the year. However, if this becomes an acceptable tactic for a year, the company is going to end up in one of two places.

The first is exactly where you are now, with little improvement, no more (and hopefully no less) efficiency and no additional budget for flexibility or growth. The second place you could end up is worse off, as you get buffeted by environmental influences you have not countermeasures for, such as competitive, financial, political, regulatory or technological change in the market and/or the industry. 

If you want to be somewhere different from where you presently are, it is time to plan to plan. Having a comprehensive assessment of your current position and total (shared) clarity on where the company should be at Christmas 2008, you need to have a structured plan, complete with objectives, strategies and work-steps, that can make this target plan attainable. Any plan will also need contingencies, resources and accountabilities for every member of the team, so that ownership and team commitment are complete and universal.

January is Strategic planning month for Xenex Consulting, for our various division, as well as for our clients who are serious about changing their rate of progress. A one-day workshop (independently facilitated by a qualified and experienced strategic planning professional) could give you all the kick-start your needs. 

Xenex still has some spaces available for 1-day facillitated planning workshops (which then deliver a structured workplan, a GANTT of work-steps and all the required accountabilities for every team member to follow) if you are serious about making sure you are not in the same place next year. If you would like more information on our Strategic and Operational Planning workshops for January or any other services you may see on our website, please contact Daniel O’Connor on 08 9325 5888.

Migration News

As we start the new years and we approach the Chinese New Year (February 6^th) this should be a time for planning our focus for 2008 and a review of our achievements (against our goals) in 2007. The staff and Management of Xenex group wish all of our readers and clients a prosperous 2008 and we value the opportunity to provide our services to you throughout this new year.

Xenex consulting have senior personnel (all experienced and tertiary-qualified) to research and prepare business proposals for State Sponsorship applications to all States in Australia, under the State-sponsored  visa subclasses. We are not migration agents and do not act on behalf of, or consult to the Applicants. All proposals processed and lodged are done so on behalf of the Authorised Migration Agent who has been appointed to represent their client in the Migration process. We require a completed 956 as part of our assessment questionnaire.

Our structured business proposals are delivered within 3 working days of receipt of the required information and cost just $1,500 for most applications. The Subclass 892 is just $1,250 and the Subclass 132 is $2,000. The Subclass 892 attracts GST as the Applicant is resident in Australia and we are therefore providing services within Australia. We still enjoy a 100% success rate on applications, including some cases we have accepted where the applicants have been refused sponsorship on more than one occasion.

Our information requirement is structured and simple. We have questionnaires and the relevant State application forms (for all States) available for easy download from our website, for immediate download.  If you wish, we can email these or fax them to you upon request. These can then be completed and emailed (or faxed) to us and we will assess and accept the project based on this information. The DRAFT PDF proposal is then provided to the Agent within 3 working days along with the invoice and once we receive the payment and the authority to release (along with any edits) we will then lodge this application directly into the office of the relevant sponsoring State.

Our applications are fully researched, structured and include the financial projections, the letter of application, the Statement of Compliance and the overnight bag to the relevant State Government. We also provide an unlocked PDF version (or a hard copy) to the Migration Agent (without the Appendices – this can make the document very bulky for shipping) for the DIAC application.  

Do you want to receive lists of businesses for sale in Australia?

From time to time, we have business opportunities provided to us that may or may not suit business migrants. We are not business brokers and therefore do not promote or sell these business opportunities, but we would like some feedback from Agents on whether this announcement service would be of benefit to their clients. We have some that suit subclass 163-5 applications and others that would meet the 132 application criteria. Here is one sample:

Small web development, training and hosting business run from suburban office. Turnover $200,000 (approx) with net (before owner’s drawings) of around $120,000pa. Has strong growth and includes web development tools and training. This business could have one web developer employee added to effectively double the turnover.  Price is $120,000 wiwo or the current owner is prepared to sell half as a partnership (makes the one additional employee harder). Good spread of clients, including some blue-chip mining, resources and Government clients. WA Based.

If people, systems and processes that enable a business to run independently of its owner in day-to-day operations have not been put in place, potential buyers will find it a risky investment that may not be worth taking up, or only at a highly discounted price. Putting it bluntly, buyers don’t want a business that is heavily reliant on the owner because it is likely that business will suffer with the departure of that person. Business value drivers Potential buyers investigate a range of value drivers and the better the condition they are in the more you can drive up the business’ value and asking price. Two of the top drivers are: - A stable, motivated and competent team of employees (and managers in larger businesses); and - Operating systems that have systemized many of the day-to-day procedures. These two drivers, human capital and systemized processes, provide a great deal of the comfort factor to a buyer. In early years the owner is usually everything. Without their involvement in the business there is no business. As such, the concentration of knowledge lies mainly with the owner across all the key areas. As the business gets larger and the scale and scope of its operations widens, owners should have found ways to transfer knowledge in key areas to employees – particularly to any management team – so that at selling time the concentration of knowledge has shifted from the owner to the employees. Once owner-managers develop their human capital value driver, they provide themselves with room to more actively manage their business. At the same time they have enhanced the value of the business by reducing a buyer’s investment risk. With key operating and management personnel capable of running the operation, a new owner can make the acquisition and learn the business while the company's personnel continue to effectively carry out the day-to-day operations. Corporate purchasers generally prefer acquisitions with existing management teams in place. Working on the HC value driver involves training and development and delegation of responsibility as a basis, but it should go further. The actions you can take can be both positive and defensive. Beyond the need to develop human capital, there is a need to assure continuity of operational effectiveness and its associated value driver, profitability. This means documenting important relationships, special product or services knowledge and procedures for carrying out many of the operations of the business. It’s important to get knowledge about how things work turned into systemized business processes as a basis for sustainable productivity when the owner departs. The most powerful improvements in productivity come from systemizing processes so that the business performs in the manner of a franchise. Franchises have been an incredibly successful form of business because of their turnkey nature – proven systems and processes within the business are documented and can be used by anyone. Franchisees don’t have to learn everything from scratch for themselves. Documenting procedures offers the opportunity to rethink and improve them and an operations manual gives a buyer some security that they, or their managers, will have any answers they need to find after they have taken over and are running the business. If a buyer concludes from their due diligence that they are going to have to spend money sorting out the infrastructure it will probably come off the purchase price. Simple, documented processes that transfer the owner’s skills and remove them from the process ultimately add to the value of the business. Taking the owner out of the business is an essential prerequisite to putting a business up for sale if it is to achieve top value. The better the business can operate without the owner the more attractive it will be to a buyer.

Today it’s a common and acceptable practice to accelerate growth by merger with another firm. But often enough smaller firms (not to mention some notable larger ones) actually decrease value and fail to produce the strategic benefits expected. How can a company entertaining a merger improve the likelihood of success?

Traditionally business growth developed organically over the longer term as a company improved its operations and market penetration from year to year. A merger can seem an attractive strategy for leapfrogging into new markets instantly and for a fraction of the trouble involved with growing organically but, in fact, more than 50 percent of all mergers are considered a failure. Studies of successful mergers suggest a number of areas in which things must go right. The impetus for a merger should emerge naturally from the overall business strategy so that there is a clear vision of how the entities in combination will be better able to increase revenues and gain market share than either could on its own.

Establishing strategic compatibility requires a thorough due diligence to establish the internal strengths and weaknesses of the target company as well as the opportunities it will allow. Anything that could present problems further down the line, such as dealing with relocations and layoffs, compensation changes, hardware and software compatibility or the consequences of an unresolved lawsuit, should be considered. Rapid Integration There is general agreement that the earlier the integration program gets underway the better the end results.

Planning the integration should begin as early as the merger comes up for consideration and integration issues should be considered in the due diligence process. Before closure, all major integration decisions should have been made at least in principle. For instance, what the new organization structure will be, which product lines will continue and which be terminated, which/whose business processes and IT systems will be adopted as company standard. Integration decisions are best made, when possible, by joint teams who can bring full information on the capabilities of their respective company’s systems and process to the table. Rather than spending time in an attempt to design the perfect business process or system, it has proved equally effective to choose the best aspects of each organization as the standard for the merged company. Company A may have the best IT system; company B the better customer service protocol. Adopting the best each company has to offer speeds integration and retains the practices that have delivered superior performance in the past. Active senior management commitment from both entities is critical to driving rapid and successful integration.

There must be a common view of where the merged entity needs to go – a common vision and strategy. Where integration issues haven’t been adequately addressed before the merger and there are delays in setting up systems, it’s possible for the new entity to lose its focus on doing business. Employees are diverted from their core roles of driving sales and maintaining customer service to tasks around integrating business processes, IT systems, and product lines. The business loses contact with its customers and impetus in its marketing and sales activities. The difference between success and failure can turn on the ability to remain focused on doing business throughout the merger process.

Pre-merger planning and post-merger allocation of integration tasks must work to ensure that customer-facing employees retain the time necessary to continue their customer acquisition and sales work. Communication, early and often, to customers, employees, partners, and other stakeholders is integral to managing a merger. Part of the strategic positioning of the new entity should involve developing messages around why the merger is taking place, what it is expected to achieve for the company and what’s in it for customers and employees.

Mergers mean uncertainty for employees. Layoffs and redeployment or re-grading are a frequent adjunct of the process. And uncertainty translates into decreased productivity. It’s estimated that the majority of mergers fall short of their objectives because management has become bogged down with finance and technology issues and failed to spend sufficient time integrating corporate cultures and management styles. Senior managers involved in mergers regularly identify talent retention as one of their biggest challenges.

Cultural fit should not be underestimated. One of the most costly merger failures was the 1994 acquisition of WordPerfect by Novell. After just two years and numerous troubles, central to which was a colossal culture clash (the two firms disagreed on everything from decision making to customer service) Novell sold WordPerfect for about $1 billion less than it paid. The failure rate for mergers as a growth strategy may be high, but a properly planned merger with due consideration given to all the issues, can deliver both short-term growth by providing access to an established revenue stream and customer base and long-term competitive advantage.

If you are contemplating such a merger or acquisition, contact Xenex Consulting for some strategic advice for long-term peace-of-mind. You can engage a business modeling specialist in a (pre-purchased) 10-hours per month advisory role and be assured with some expert advice throughout the process. Call Daniel O'Connor on 08 9325 5888 for an obligation-free discussion on your intent.

Death, Divorce, Disability and Departure – these events, by no means unusual or uncommon, can instantly throw a small company into disarray. The 4Ds are unpleasant to consider but when one of them befalls a business that doesn’t have a plan for dealing with the fallout, the result can be catastrophic: disorganization, loss of business opportunities, loss of customer or market share, and a decrease in employee morale and productivity may be the least of the repercussions. Family or partner discord, heirs left un-provided for and the demise of the business are very real possibilities.

Death

Particularly in family businesses the death of an owner can trigger a business disaster. Death can leave the heirs financially unprotected. Hoping the surviving partners will ‘do the right thing’ may prove optimistic – especially where big money and personal interests are at stake. Where a partner has died without leaving any written plan outlining their ownership rights and what was to happen to their stake, it’s not unknown for the surviving partners to cut the family out of the business without recompense. Even where there is an agreement, if it hasn’t been properly structured to take into consideration all the contingent issues then it’s as good as useless. Fatal disputation can arise around issues like:

- Is the business required to buy out the heirs? If so, what price should they receive for their share of the business and under what terms?; and

- who is to be the purchaser - the business itself or the individual owners? Personal matters can arise: are all partners happy to work with the respective heirs of the other partners?

If an agreed procedure for dealing with these issues hasn’t been nailed down in a formal agreement, or set of agreements, then litigation is a likely recourse by a disgruntled party and that will inevitably eat into the value of the business. At death a tax liability is attached to the market value of the owner’s share. If a method of minimizing tax liability hasn’t been factored into a transition plan (for instance by willing shares to a spouse) then it can mean hurriedly trying to raise finance to cover the amount. But in many instances banks aren’t prepared to come to the party when the business has lost its major asset – the owner.

The business may have to be sold to pay the tax liability. Simply put, an owner/partner needs to understand that failing to properly plan for what happens to their equity in the business after their death, such as with a buy-sell agreement, will have consequences for their family and any co-owners of the business.

Divorce

Rarely do you see divorce listed as a cause of business bankruptcy, but with nearly half of all marriages ending in divorce, in circumstances that frequently turn ugly, divorce litigation has destroyed many a privately held business. In the absence of any type of divorce planning, such as a pre-nuptial and a buy-sell agreement, all assets may be legally required to be divided 50-50. To come up with the cash to pay the divorce settlement owners have had to sell their business. That may not be the final, or worst part of the story. In a court enforced sale the owner may have to accept a discount price.

Disabiity

The chance of becoming disabled during one’s working life is anywhere from one in four to one in three - far greater odds than the probability of dying before retirement. And statistics show that a disability that lasts beyond more than a few months will likely continue for several years or longer. Owner/partners need to think beyond simply replacing lost personal income, because for them there is more at stake, such as long-term obligations they have contracted into (for example, a lease). Forced retirement of a partner due to ill health can jeopardize the likelihood of continuing partners getting their fair share out of the business or of preserving their interest in it.

After a year or two, continuing to carry a disabled owner on the books gets to be an unacceptable expense for many small businesses A disability buy-sell agreement can take care of these issues by specifying the types and amounts of insurance partners should take out to cover the contingency of health related forced retirement. It can extend to specifying disability buyout insurance to provide a means for co-owners or an outside entity to buy the interest of the disabled owner, generally over a period of years, once it is evident they are not going to return.

Departure

Partners can decide to leave for a number of reasons. They may decide to take up another opportunity or simply to take life easier. Here the issues revolve around determining what is owed the leaving partner and where the money to pay them out is coming from.

Without proper planning it can be a real challenge for the retiring owner to extract, as cash, the value they have locked up in the business; and for the remaining owners to compensate for its removal without recourse to methods that could damage the business’ viability. An announced departure shouldn’t trigger panic – it should trigger the provisos laid down to handle the situation in an established buy-sell agreement. Provisos that have ensured there is an agreed procedure for dealing with the situation.

Planning the 4Ds

Unpleasant and emotionally charged as it may be to contemplate the 4Ds, planning for them should be an integral part of overall business and personal financial planning for business owners.

The last thing an owner needs is to be forced to sell their business in a hurry because of unforseen circumstances or to leave their business or family in a dire position when they die. Though circumstances may occur unexpectedly that doesn’t mean they can’t be envisaged and planned for. An estate plan, a buy-sell agreement, a pre-nuptial agreement – all can feed into an overall transition plan to protect the business and its dependents in the eventuality of one of the 4Ds.

Your vision will become clear only when you can look into your own heart. Who looks outside, dreams; who looks inside, awakes.

- Carl Jung

Be sure to read each article with the mindset "How could this apply to our business." Thinking of it that way will guarantee that you get value. Better yet, take notes as you read and commit to having the ideas implemented by the time the next edition arrives. Also, make copies for each team member. To really make sure something positive happens, work with your Xenex business development specialist to talk your team through the ideas and how to set a schedule for getting them implemented. We're here to help you get started.

While every effort has been made to provide valuable, useful information in this publication, Xenex Group and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.