"Why Businesses go bust" Steve O'Reilly from KPMG

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.


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.


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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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


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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.

http://www.malagab2b.com.au/event/mdba-breakfast-club/?instance_id=99












Managing Finances & Reducing Risk

July 2015

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



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



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



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?




Reason Four

Poor quality of reporting

Quality of management reporting

Timeliness

What are you focusing on?

Know your balance sheet

Budgeting

Strategy




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”



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



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





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 --



Being on the front foot

Be proactive

What are the indicators of stress?

Manage your banking relationship




■ 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




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)



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.”



Some facts on fraud



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



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



Fraud

Fraud prevention

Check references

Tone at the Top

Training

Rotation of jobs

Evaluation of internal controls



Presenter details

Steve O’Reilly Director, Private Enterprise KPMG

Phone: (08) 9278 2131 Email: [email protected]



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

Small business tax concessions

July 2015



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



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



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.


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