August Issue 2024

What Causes Shrinkage?

Shrinkage can be very expensive for many businesses, and unfortunately, the “Cost of Shrinkage” is rarely quoted in any financial reports. Shrinkage occurs when the business fails to sell an item at its full price. The difference between the “Potential Selling Price” and the “Actual Selling Price” is shrinkage.

Shrinkage can be caused by many factors, including:

• Damage to a product
• Incorrect pricing or invoicing of a product
• Theft by a customer
• Theft by an employee or delivery driver
• Errors in recording product details
• Not adequately checking products when they are received into the business
• Poor handling techniques leading to damaged stock
• Leaving perishable products out of refrigeration for longer than the stipulated time
• Overordering of a product and then having to discount the product to make a sale
• Stock going out of date or fashion, resulting in having to be sold at a discount

Shrinkage is a major problem for Retailers, but it can also cause loss of profits for Wholesalers, Manufacturing Businesses, and Tradies Businesses.

Waste Management – A Key Management Challenge

Waste is another significant cost area for many businesses.

Waste is defined as anything within the process, people, or structure that is wasteful, including space, time, parts, people’s potential, and more.

Accountants can assist management by ensuring that, at each “Business Improvement Meeting”, a discussion is held about what is happening relative to waste on the workshop floor, shop floor, office, hospital, surgery, etc., to get a full understanding of the potential for waste reduction within the enterprise.

It is generally accepted that there are “7 Major Waste Areas”:

1. Overproduction
2. Waiting (delays)
3. Transport
4. Extra Processing (inappropriate or excessive processing that does not add value to the customers)
5. Inventory (extra inventory increases costs)
6. Unnecessary Motion (any movement that is not adding value)
7. Defects (costs involved in rejects or reworks)

Export Market Development Grant Update

The Export Market Development Grant is offered by the Australian Government to any type of business (sole trader, partnership, Discretionary Trust, Unit Trust, private company, unlisted public company) with an annual turnover of less than AU$20 million last financial year that is involved in the export of goods or services or the promotion of Australian services to overseas residents, e.g., tourism.

There were significant changes made to the rules pertaining to the Export Market Development Grant during 2021/22, and there have been further operational changes since.

The program is now an “Eligibility-Based – Demand-Driven” grant program. This means that all eligible applicants receive a grant from the available funds, which are dependent on the annual allocation for Export Market Development Grant included in the Australian Government’s budget, administered by Austrade.

Grant amount depends on:

• The number of eligible applicants in the round (described as “demand”)
• The available program budget shared among all eligible applicants

Since 2021/22, an applicant is required to submit their application, identifying what your activity is before you spend any money on export promotion that you hope to be able to claim as part of this grant. This change provides greater upfront certainty for exporters.

Austrade will enter into grant agreements with individual exporters, specifying funding for each year over 1, 2, or 3 years. The Government’s contribution is 50% of the eligible expenditure identified in the approved Grant Funding Agreement.

Grants are paid progressively in accordance with the Grant Funding Agreement.

Eligible expenditure categories to claim the Export Market Development Grant include:

• Maintaining a representative in a foreign country
• Short trips to a foreign country
• Consultants
• Short trips within Australia relating to export activities
• Foreign buyer visits to Australia
• Soliciting for business in foreign countries
• Sending free samples to potential overseas customers
• Promotional and advertising material
• Intellectual property rights
• Training activities for Tier 1 applicants (new exporters)

The next round of grant availability is expected to be announced by Austrade before 31 December 2024. If you are undertaking export activities or are planning to undertake export activities, now is the time to start thinking about submitting an application for the grant.

Getting Presentation Right

As a business person, you have many opportunities to make a presentation. In fact, each time a presentation is made, your business is on trial. How much thought goes into a presentation, whether it is at a conference, via webinar or video, or a Zoom meeting, depends on your knowledge of the subject and the audience.

In each presentation, a performance is required so that you can have the audience feeling inspired.

You might not appreciate it, but you are making presentations virtually every day.

Improving these presentations can have a great bearing on the success of your business.

Some suggestions on making a great presentation:

• You need to plan what you are going to say – prepare script notes.
• If you need PowerPoint slides, don’t include too much information – you should “talk the talk” to convey your message to the audience, with the slides serving a reference purpose only.
• Make sure the printing on the slides is large enough for people in a presentation room to read.
• Make sure the computer, Zoom connection, and in-room presentation technology are working properly before you start the presentation.
• Practice your presentation, particularly the key points.
• Look at your presentation like a TV show – have you identified the “vision” that you’re trying to portray?
• Have you thought about a “compelling story” to be conveyed in your presentation?
• Dress for the importance of the occasion.

Prior to making your presentation, it’s a good idea to think about:

• Could the presentation be made differently?
• Are you bringing enthusiasm and product knowledge into the presentation?
• Examine the format for your presentation “critically” with a strong emphasis on “your business is on trial in this presentation”.
• How do you think the most important group of all, “the audience”. is going to react? Are they going to be bored, or are they going to listen intently to every word and absorb what you are saying?

If you don’t “Practice Your Presentation”, you won’t give your audience an “Oscar-Winning Performance”.

Understanding Business Funding

There are a number of potential sources of funding for an SME other than seeking a loan from a bank or other financial institution. This month, we will comment on the initial preparation that is necessary for a business to achieve “Investment Ready Status” if the Directors wish to raise capital from investors.

The most common entity to be utilized to raise capital is a company. The company may be a private company or an unlisted public company.

Conveying the Vision:

Investors receive a lot of enquiries from people looking to raise capital. This means that it is very important for the company seeking to raise capital to be able to clearly convey the VISION that the Directors and Leadership Team have for their company.

The key document for conveying the vision is the BUSINESS PLAN.

The Business Plan outlines the VISION for the Company and is the key document that potential investors will read.

The Business Plan is normally developed from discussions by the Leadership Team with the Company’s Accountant or a virtual Chief Financial Officer who specializes in the preparation of business plans, who participates in the “VISION DISCUSSIONS” with the Leadership Team and the Marketing Consultant who is preparing the “Market Research Document”.

The Accountant or vCFO then reflects the “Market Research Document” within the draft of the Business Plan and submits a consolidated draft to the Leadership Team and the Directors to consider.

There normally will be questions that the Leadership Team or Directors ask. When answers have been submitted, the BUSINESS PLAN is then ready for ratification by the Leadership Team and Directors as the document that clearly reflects the VISION FOR THE COMPANY for the next 3 – 5 years.

It is very important that this document is not filed in the bottom drawer and forgotten about. It has to be a “working document”.

What Does It Mean?

• EBITDA – Earnings Before Interest, Tax, Depreciation, and Amortisation
• EBIT – Earnings Before Interest and Tax
• EBT – Earnings Before Tax
• Adjusted EBIT

Calculated as Earnings Before Interest and Tax plus Principal’s wages, superannuation contributions, motor vehicle benefits, specific benefits for the Principals of the business, including:

• Travel
• Entertainment
• Directors' fees

Less an allowance for notional wage in accordance with industry norms.

If you would like assistance on any of these activities or anything else relating to Export Market Development Grant please do not hesitate to contact Peter Towers, Managing Director, Towers Business Development.