As we approach the 12-month mark back to when Covid had the first dramatic impact on our lifestyle here in Australia, many ask what we are seeing the future to be for the business community and what decisions should they be making at this time.
The challenge for many, ourselves included, is that there is no rule book for times like this. We are currently in a ‘Pandemic’, yet the share and property markets are booming and many businesses (on the Sunshine Coast) for the December quarter recorded record profitability.
The main question we are hearing at present is where to from here and what should we be doing. Unfortunately, we don’t have a crystal ball to know what possibilities are out there. There are some sectors that are starting to feel the delayed affects of Covid.
The main issues we are finding that businesses are now planning for are as follows:
No matter if it is unskilled or skilled workers, finding good quality staff is still the largest issue most businesses are facing. Many are reporting either no applicants applying when positions are advertised or challenges with applicants not accepting positions when offered.
There are difficulties to overcome this. Some options we have been implementing ourselves and with clients are as follows:
i. Forward Planning
Many businesses are forward planning and starting the process 6 months in advance to the position being required. Whilst this is a cost in the short term the advantages are that it allows time to find the right person and time to train them prior to the point of the actual need. This will also then prevent making rash decisions of hiring anyone just to fill the position down the track.
ii. Revisiting systems and what is needed
Here many businesses are looking at their team models and if there is the opportunity to hire graduates or administration team members to take work off highly skilled employees to free up capacity and reduce the need for as many highly skilled which is difficult to find.
This does not work in all businesses and it requires a commitment of time from management to lead the change and implement the systems etc. Which may also not be realistic.
iii. Use of recruitment agencies
The model of many recruiters has changed over the last 5 years. With many offering flat recruitment fees and replacements as opposed to the previous % of salary model.
In our business we often use an agency especially for administration team members as we have found that not only did we save time (especially as these positions often have a significant number of applicants) we also had a better pool of candidates to interview as often the agency has in house candidates that would not have otherwise applied for the position if they weren’t aware of the opportunity etc.
iv. Systems and HR Procedures
Covid and the government stimulus highlighted more than ever the importance of good HR procedures and staff engagements. Now is the time that business owners need to ensure that they have their ducks in a row as replacing staff is costly and if you don’t follow the rules it can in turn undo the business (just ask George Combalaris).
Our recommendation is that you need to ensure you have:
- Employment agreements
- Job Descriptions
- Annual Performance reviews – talking with your team can be the best way to find areas of improvement in your business. They are your asset. You would not drive your car without servicing it to make sure it is working 100%, yet many businesses operate without checking in with their team members. If you are not confident here have an external party help. It is not as expensive as you may think and if it saves the lost time of finding a new team member it is a great investment.
- HR Policy manual
- Regular team meetings
v. Right people in the right roles
You will see in the media at present a large emphasis on mass redundancies etc. that is coming with the end of Job Keeper etc.
For businesses right now there is no crystal ball as to what will happen. So, it is important that you are reviewing your staffing and making sure that you have the correct people in the correct roles. It is important to ensure that if your business is slowing down and there is no committed work coming on the horizon then it may be the time that you need to reduce your staff numbers. As a business owner this is a hard decision for business owners to make. However, as an owner it is also our responsibility to make sure that the business is sustainable and often if you make the tough decision now it will stop long term problems.
I have often seen in businesses that if they would have downsized their team, they could have saved the jobs of the majority. However, the avoidance to make this hard decision meant that the business wasn’t sustainable long term so instead of one person losing their position all team members did and only after a period of significant stress.
b. Supply of goods and effect on business profitability
The building industry whilst it is currently booming and in demand, it is also facing some significant profitability issues due to the significant rise in cost of materials. We are hearing reported 6% + increases in materials which since the builders have priced the jobs up front it means that for most it is the builder that will lose the profit on the build.
For an industry where the profitability margin is already low, this will lead to significant issues from a cashflow perspective. Where possible, the action that needs to be taken at present is:
i. review what projects you have committed to.
ii. what increase in costs you are estimating?
With the above numbers is the reduction in Gross profit going to cause an issue in ability to pay your overhead costs i.e., rent, personal wages, loan repayments etc.
i. Review Quoting
It is important that when quoting now you are reviewing what you are quoting and budgeting for future price increases where possible.
c. ATO and Tax Planning
With the ATO being quiet for the last 12 months we have noted a large increase in activity over the last month as the ATO has commenced the recovery process of outstanding debts that were put on hold and clients that have not lodged returns.
Currently there is 2 issues as business owners that need to be addressed:
i. Outstanding Debts and Lodgements
You need to get up to date with your lodgements and arrange a payment plan with the ATO for your outstanding debt. We are seeing that the ATO is very understanding in currently negotiating payment plans for those businesses that are proactive and contact the ATO. It is the businesses that avoid the ATO that are going to have issues.
It is important that you are aware of your debt and have a plan to repay, because if in future there become issues with your business and you are unable to pay, this could affect you personally as many of the taxes are now a director’s responsibility and the ATO will come after you personally to recover.
ii. Tax Planning
For many businesses who received Job Keeper their business has increased in profitability year to date which means that there is a potential unexpected tax bill looming. It is important you are planning for this and not spending the cash on capital investment that may not be tax deductible. Read here for more information on Tax Planning https://www.mjjaccountants.com.au/tax/tax-planning-tips-to-maximise-your-return/
d. Cashflow and Cash Reserves
Whilst times are good there is the challenge to think that this is the new normal. Which, if that is the case for many it will be great. However, at the end of February we did see some reduction in retail spending and restaurant profitability reducing back down to normal levels.
For business at present, it is important that whilst it is difficult to forward forecast it is important that you are regularly reviewing your businesses performance so that you can gauge what is actually happening within your business.
I.e. if you are a restaurant, is your average sale decreasing over the number of heads you are serving?
If you do not have set KPI’s you review in your business on a weekly basis, this is something we can assist you with. The value of knowing your numbers at this time when the economy is uncertain is what we know will see the successful business operators outperform as they have the data and will react in a timely manner to make changes.
If you are not reviewing your numbers regularly it is all the little expense drains such as overstaffing, additional stock etc. which will affect the profitability if it takes too long to react.
As a business owner there will be changes in performance that you won’t be able to control in the current climate. But it is the businesses that have cash reserves and agility to adapt that will come out the other side.
If you require any further advice on any of the above, please call our office on 07 5451 1118 to book a time to speak with Melanie or Renee.