Speaker: Ron Wood, Pricing Insight

How do you calculate prices for your goods/services?

Do you have a pricing manager in your business?

Where does pricing power reside in your organisation?

Is there a disconnect between your sales and accounting staff?

These were some pertinent questions raised by Ron Wood of Pricing Insight. Pricing Insight is a consulting organisation that specialises in pricing strategy. This session would be more relevant to management accountants. Overrall, we must say that the session was quite good and highly interactive. It was in the same round table room as Five Financial Must Do’s session.

Initially, we got started by talking amongst the individual tables, specifically to the person next to you about pricing issues that your organisation was facing. Then Ron went around the room asking different people about their pricing issues and generating some short discussions about it.

What we liked about the session was that he challenged our perceptions on pricing and advocated that we could all find 1-2 points of margin in the the supply chain. The most common strategy is to use a cost plus markup, but this does not always reflect the true cost or even a healthy profit margin.

One of the issues raised by Ron was rebates. There were some people representing FMCG / manufacturing organisations in the room and this was relevant to them. There were two ways to classify rebates – active and passive. A point that we particularly liked is to “incentivise your customers to lower your costs”. i.e. in effect giving your customers a rebate.

Some other useful insights he provided were in relation to your sales force:

• The famous saying of  ”look after the top line and the bottom line will take care of itself”. This may have been true in the 70’s when we had high inflation, but this doesn’t work anymore!
• When you have a  new sales person, the first 90 days are the most dangerous. As what will they typically do? They want to bring in sales so they simply discount without regard to long term relationships. This can potentially upset the market
• There needs to be a price repositioning and they need to understand the market’s “willingness to pay” and their “capacity to pay”, and it is value that connects them. The sales force often struggles to sell value.

He gave a case study of GE and how they have invested heavily into pricing strategy. In fact, they even have dedicated pricing managers in each department. They were probably the best in the business at pricing strategy. Whereas in other large companies, they simply had  $60,000 analyst deciding on pricing strategy. So where does your company sit?

We then did a standup exercise on where pricing power resides in our organisation. The room was divided into a quadrant using the microphone in the room as the centre. The four quadrants were marketing, sales, operations, and finance. We were then asked to stand in the section of the room where pricing power resides in the organisations we represented. Not suprising, most people went into the sales section, just above the finance quadrant. Ron then went around the room asking why people choose their positions and the rationale behind it.

We were then taught a concept known as “value pricing”, which is an economic conversation you have with your customers and to also include a value for risk inherent in the purchase decision. Hence we need to add a margin for risk value. Businesses must learn to sell the total economic value to the customer.

We found from some of the other particpants that there was a disconnect between sales staff and accounting functions. The sales staff simply go out there and win lots of work, offering discounts or services which may not be feasible to perform, and then the accounts and operation staff are left to resolve it. An important point to note is that you dont need to show your sales staff your costs. They do not need to know – otherwise they’ll just discount and sell at the lowest price possible. It is also important to teach your sales staff what is valuable, otherwise they will not understand what to communicate as value.

Overall, we found the session to be practical, interactive, a bit of kick up the backside to rethink pricing strategy!

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team

Accountants need to move up the value chain

The first session was by the CIMA President on the alliance between CIMA and the CPA. CIMA is the Chartered Insitute of  Management Accountants, and to be honest we had not heard of it. Its a global organisation and Aubrey Joachim, their global president was on hand to present.

The first 5 – 10mins was like ad for CIMA and the benefits for CPA’s for joining up. But after that, it got interesting because he spoke about where management accountants fit in the organisation and where he sees that role heading. The main points that were clear to us is that the role of management accountants is changing from transaction processing  to decision making. That is where management accounting needs to be  more involved.

This is because a lot of these tasks (transactions processing) are being automated and moving into shared service centres such as offshore into India and Philipines. Automation and globalisation is forcing management accountants to move up the value chain and not just provide data/information, but value and insight for decision making. They need to migrate to performance reporting and performance rating, business analytics and modelling for the future. There needs to be a shift from the mentality of “score keepers” on the sideline to “players” on the team. A move from finance competencies to businesss capabilities. An analogy that we really liked as well! These were similar sentiments expressed in an earlier session.

He stressed that this is the significant difference between organisations, given that they have the same resources it is decision making that really sets them apart. Management accountants must still retain the core technical skills and not move too far into strategic areas because this is the role of MBA’s.

One of the key differences between non qualified accountants, MBA’s and qualified accountants was strong ethical and professional standards. For qualified accountants (and we assume he means CPA, ICAA or CIMA qualified), there is recourse to disciplinary boards and members can be stood down.

Five Financial Must-Do’s

The next session we attended was by Don Graham of BusinessNAV. BusinessNAV specialises in providing management and accounting software that deal with sales, marketing, and cashflow metrics. This session was held in one of the smaller rooms and had a roundtable setup. There were like 5 roundtables, and the room had about 80 people.

This session focused on five financial must-do’s facing small to mid market companies. First, we looked at factors in the current environment:

1. Availability of cash – this has severely dried up

2. Credit Policy of financial institutions – which has dramatically changed due to GFC

3. Insolvency Practice – there is a soft underbelly in a lot of businesses which are reliant on the strength of economy.

It was designed to be more of a practical session and he ran through several case studies. The five issues that Business Nav looks at when analysing a business is:

1. Cash flow structure
2. Budgeting
3. Quality
4. Timely
5. Decision making

He mainly concentrated on an example of a services company to illustrate the first two points, which we later found out to be an law firm aggregation model. We were also provided some basic numbers in a cash flow statement and balance sheet. A lot of time went into this example and we simply ran out of time in this session.

So we only covered the first 2 points, the last 3 were rushed. We feel that the time restriction did not do it justice – his session is probably more suited to a few hours or a half day session. Most of the sessions at CPA Congress are meant to be 1 hour – which really is 50mins with 10mins for questions.

One of the examples we were really liked was Norm and his tomato business. Norm had $13million turnover for his tomatoes, as well as coffee and foods business. This business was employing 2,000 people. Norm brought in Don Graham as a financial controller. What set Norm apart from other business that he understood his balance sheet. He wasn’t an accountant but understood the important numbers. Once a week he would sit down with his accountant and ask for the following:

• A list of debtors (people owing money to him)
• Stock – he had a gut feel for how much the operations would cost (transportation, storage, growing, etc..)
• List of creditors (people who he owned money to)
• Bank statement

This would give him a good breakdown and also a top level view of where his business was at financially. If only more business owners did this! One of the biggest problems seems to be that businesses can’t keep control of their costs. They are selling a lot of stuff, but they don’t have a handle on how much it costs to sell that product or service, and how much each sale adds to the bottom line.

Gender Lunch

At lunch, we were treated to another great meal! Who said accountants don’t eat well? We will post up some pictures of the food later. The lunch sessions usually feature a bit of more light hearted topic. The last two were sports and motivation. Which is good, because we don’t think we could take another business or accounting session packed into the day. So its a great way to break up the day.

This particular session had Amanda Gore who spoke about bridging the communication gap between genders. It was very entertaining and interactive, and rather funny. She gave us an understanding how differently men and women think and how men can talk to women and vice versa.  We ended with some exercises where everyone on the table got to hold hands! It was rather strange to see 300+ accountants holding hands. Yes, we have some great pictures of this as well!

She drew up some examples on big notepads on some easels, but this was hard to see as we were sitting up the back. Perhaps this would have been aided by some larger diagrams on the tv screens. But overall, it was fun and it got everyone involved.

Please see our part two here

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team

(Note: There were some minor corrections made to “Five Financial Must Do’s” after BusinessNAV contacted us. There were (1) 80 people registered (2) Business name is BusinessNAV and (3) Don Graham was FC not BusinessNAV)

This was a talk from an academic, Gayle Avery about Sustainable Leadership models. The title of the session was “Updating business models during the financial crisis” and we assumed it was going to be about financial models or updating business practices. As another audience said after the presentation, they did not know what to expect either.

The session revolved around explaining a new type of business model called FourS, which is about sustainability and the organisation being part of a wider community. A lot of business operate on a TRAP business model, that is:

Tough

Ruthless

A-social

Profits

This is a business as usual mentality. That the company is out to make money and it needs to be aggressive, to met the expectations of shareholders. This model as labelled as “locust leadership”.

However, Gayle advocated a new business model called FourS:

Social

Sophisticated

Stakeholder

Sharing

This was known as “honeybee leadership”, how organisations are interdependent on their suppliers, clients, and the environment. Traditionally, we have been taught and reinforced that corporations need to be based on the TRAP model. But a new emerging trend is corporate social responsibility and triple bottom line, and this is only the start of it. FourS model is about changing the way that the whole organisation operates.

Our view? We agree that organisations need to be more socially responsible - you can’t simply pillage all our natural resources and you need to consider the community. There are competing considerations between profitability and environmental and social responsibility. Perhaps we do need to be more aware of these factors and also implement them in practice. We are seeing more of an emphasis on these issues and also on carbon emissions. These are things demanded by stakeholders, employees coming into an organisation and government bodies.

This session actually felt like a management university lecture! But the audience seemed responsive to it and someone asked a great question: ” I’ve worked in the US and there is a greater emphasis on CSR and sustainability over there, and it has been elevated by awards and accolades. Why isn’t there something similar in Australia?”. Gayle only shrugged and said we should and it is up to us to do so.

Leadership principles and success

We heard from a very senior and well respected executive, David Gonski. His resume is as long as my arm! He’s the chairman of Investec, ASX, Westfields, Coca Cola and a director of ING, Singapore Airlines, and Chancellor of UNSW. Clearly someone that a) needs a hobby and b) must be great at time management!

He gave us food for thought as to what makes a great leader. He was in fact very humble and said that he himself was not a great leader, but was merely a voyeur and observed those of who he had worked with.

These were the points he mentioned:

1. 1. Having long term thinking
2. Focus
3. don’t be narrow – have a broad view
4. be decisive
5. trust
6. vanity – play to other people’s vanity
7. Knowing when to quit
8. Being a teacher and preparing for succession

You can also read our  Day 3, Part 1 here.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team

Tax Reform

We were excited to see the one and ONLY tax session at the CPA Congress. As we arrived, the session was completely full, save for the first row!

Bob Deutsch spoke about tax reform and his recommendations for improving the tax system. Bob is a recognised expert amongst tax professionals. He is also one of the co-authors of The Australian Tax Handbook, a publication that we use! So we were very interested to hear from him.

The tax reforms he discussed were:

1. Tax Rate: Moving the personal rate closer to the company tax rate
2. Capital gains Tax: Having a $5,000 CGT free threshold, which already occurs in the UK. The possibility of removing the princpal place of residence, very unlikely in his opinion
3. Imputation credits: He spoke about the different systems in the US and in Singapore. The position he advocated was a single tier system, which is what they have in Singapore.

Bob described how he would implement a new tax system called “Simplified Tax System” and how it would work and it generated some debate amongst the audience in question time.

As someone that has written a tax paper on franking credits, we found it most fascinating (ok, we admit we’re tax nerds!). We actually felt like we were back at university attending a Master of Tax lecture!

Transfer pricing

We heard from Fiona Craig and Brendan Burgess of Deloitte on transfer pricing. Transfer pricing refers to the cross border dealings between related parties and the documentation required. Half the discussion was about ATO current topics and how it selects cases for review, and the second half was technical updates.

It uses a risk matrix and targets those for audit with higher risk, such as Pt IVA issues (tax avoidance) or where red flags are raised such as large losses. We must admit the first half of it we found to be boring.

The presenters changed, and Brendan spoke about the technical updates. We actually found the second half a lot more interesting as transfer pricing turns out to be a mix of economics, policy, law and international relations. There were Asia Pacific updates on two of our largest trading partners: India and China. If you want to read more about China, please read our China Business Overview.

He also spoke about how to manage transfer pricing in a downturn. The ATO position is becoming a lot more aggressive and reviewing pre GFC years, where there is a risk to the tax revenue. We were presented with different options for managing compliance risk from global documentation reporting to advanced pricing agreements. There is a correlation between risk/volume of transactions and the need for transfer pricing documentation.

We know that our tax audience will be interested in the above two tax sections, and we’ll provide a more detailed write up of it shortly.

Mastering the pommel horse

At lunch, we were entertained, inspired and wowed by Brendan Dowrick, Olympic Gymnast. He showed us how he mastered the 4 steps of the Pommel Horse and what motivated him. There were embarrassing moments of his career and how he managed to turn that adversity around. To go from a disastrous debut of his international career to winning the Commonwealth Gold Medal at age 19 was truly amazing.

He then asked for a volunteer from the crowd to have a go at the pommel horse doing some basic exercises. The exercise was to go completely around the horse with two hands. We considered it but chickened out like the rest of the crowd! So Brendan voluntereed Ron Switzer, CPA Australia’s NSW Division General Manager. Now Ron looks about 60 and clearly hadn’t ever attempted the pommel horse in his life.  With the full support and cheering of the crowd, he was complete the exercise and stayed on there for an extra 20 seconds! We’re glad he did it not us!

There is definitely a deep connection between sports and business, and we have seen that in the lunch time sessions over the past two days. It is very inspirational to see how athletes dig deep into their internal reservoirs of self motivation. They are able to perform high pressure with millions of people watching them. Another key concept that Brendan spoke about was marrying together talent and motivation, something which organisations can learn from.

For more information

Please see our Part 2 of Day 3 for the sessions we attended on leadership. We also wrote a separate post on the session Winning Friends and Influencing People.

You can also read the CPA blog for their take on Day 3.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team

Presenter: Jim Harrowell AM
President, Australia China Business Council (NSW),

Member, Attorney-General’s China Working Group

Partner, Hunt & Hunt

We walked in slightly late after the lunch and we were not sure what to expect in this session. It seemed like a history lesson on China on initial impression, because it started out with an overview of China in the last 60 years. However, we were pleasantly surprised with the content and its importance to the Australian economy. This was in one of the smaller rooms, with approximately 150 people interested to learn about this powerhouse economy.

Jim was a very credible speaker who had spent a significant amount of time in the country and was there during the period of the Tinanamen Square Massacre, as the tanks rolled into the Square. During that time, he pondered what the future of China would be – it was either going to take a great step forwards or backwards. It was an entertaining session and he highlighted some of the cultural differences of being a gwei-lo (foreigner), and the potential opportunities for Australian businesses.

China is Australia’a largest trading partner and with a population of 1.3billion, that is a market that cannot be ignored! The Chinese are buying our commodities, services, investing into Australia and there’s a growing contingent of Australians working in China now.

History lessons

Jim spoke about the various historic events in China:

• 3 irons
• Great Leap Forward
• Cultural Revolution
• Open Door Policy
• Collapse of Soviet Union
• Go Out policy

The most fascinating for us was the stages of the open door policy. The first stage it was open but there was no infrastructure. It was a cash economy and operated using cash accounting. There was no concept of accruals or depreciation. Accountants, imagine that!

The next stage was the recognition that the country needed the best business infrastructure to move forward. The open door policy of Deng Xiao Ping was the start. In 1996, there was an adoption of International Accounting Standards. They also understood they needed the rule of law. Higher education was given an emphasis and universities were re-established with a focus on business subjects. During the cultural revolution, there were many people sent from the city to the country to work, thus missing the benefit of education. Imagine a class of people in their 55-60 year age bracket that were not educated. It would be the equivalent of our executives in business today not having a tertiary education, which greatly impacts the ability of society to move forward.

One of the interesting points he raised was that in Australia, our politicians are mainly comprised of lawyers. However, in China there are a lot more engineers in politics. In fact there is an astounding number of engineers over there: 4 million engineers and 400,000 lawyers. These are the new architects of China, shaping the country’s operations, enterprises and its interactions with the foreign world.

Introduction of home ownership

An important reform that was introduced was the land reforms that gave citizens home ownership. Citizens were now allowed to have their own property. We were actually not aware of this reform, which was a fundamental change. Compare this with UK land ownership, where this introduced real democracy as you could not vote unless you had land. Once Chinese citizens had a certain level of salary, they no longer had subsidised housing. They were  given loans to purchase real estate. By them owning a piece of land (house or apartment), it gave them a sense of caring about the property, the surrounding environment, transportation. There was now a vested interest. It was points like this that made us really appreciate Jim’s session, and how much we need to learn about our largest trading partner.

Moving to a market economy

There was a transition from State owned enterprises to private enterprise. In the past, even the army was involved in business! Could you imagine the Australian Defence Force running Telstra? Well that was happening in China! The Chinese army was running the second largest Telecom in the country. There was a recognition that the army had to get out of business. A separation of duties and conflict of interest. A decree was laid that the army had to stop operating businesses. It was quite difficult at the time as there was no business reason for doing so, rather it was a policy matter.

Clearly, the country had to learn new ways. In the 80’s and 90’s, there was a move to a market economy. There was concern whether Chinese people would get the benefits of privatisation. The process of  privatisation involved bringing in public shareholders, so this was a whole new mentality for these state owned enterprises. It also resulted in a fundamental shift in the way management operated. Previously, the management style was to do nothing as orders came from above. Now they were put in a position of making decisions and being able to make mistakes – something that we do every day and this was a whole new concept over there.

A point worth noting is that state owned Enterprises are not all bad. Many of Australia’s largest businesses were previously State owned – look no further than QANTAS and Commonwealth Bank

There is also a different attitude in China to understand. People are prepared to trade off freedoms for government decision making if it provides them opportunities. These opportunities include work and getting their children educated.

Perceptions of China

Many people see China as a huge consumer and trader of goods. But its actually changing to an investor outside of China i.e. it is making investments in other countries. Further, the pace of growth is astounding. What a city looked like 6 months is vastly different.

The Chinese are also being educated quickly and have experience dealing with the West, and there is a lot more Chinese business people that have been educated overseas and have returned home to work. We recall when we were studying our business courses at university, there were many foreign Chinese students learning accounting. In a way, this was our introduction to their future accounting industry!

Australia needs to ensure that we balance the trade relationship. We simply cannot just sell commodities (ore, wheat, grains). We needed to be engaging in other business areas as well.

The challenges

• The Chinese economy is opening up for business. They have become very sophisticated with dealing with the West
• We need to be more relaxed about the cultural differences. These are diminishing. Chinese people will understand that we do not know all their customs and culture. So do not be snowed under, just try to appreciate the differences
• Things may be different in China and its not wrong or right. Just understand that it is different.
• Language: Is this a real problem? No. Although it helps, one can still do business and Jim gave us a demonstration of his rudimentary Mandarin. He has won cases where translation was necessary. He also referred to John Howard, who could not speak Mandarin but still had a strong business relationship with China. It was important not to overstate Kevin Rudd’s ability to speak Mandarin. While it is quite useful to be able to pick up the phone and dial the head of State in China and speak, it was not critical.

Other interesting points

When did this relationship start between China & Australia? Gough Whitlam, former Australian Prime Minister made a decision to recognise “One China” . It was symbolic and Australia was one of the first to do so.

The Chinese are looking to take equity in Australian businesses. The reason behind this is price protection.

Free trade agreement is still being negotiated. There is Chinese political pressure not to do so because it would result in unemployment. The current catchcry in China is to maintain social stability. Anything less than 8% economic growth would result in people out of work and create instability. The country has been trying to maintain this pace of growth despite the GFC.

Conclusion

We hope that our readers will have found this blog post as fascinating as we did when we attended the session. There are definitely some real business opportunities and learnings which can be gained from this. We can only forsee more trade relationships being formed, and more professional services being exported into China. As companies start dealing in transactions in China, we need a better understanding of Chinese business.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team.

“The only way to have a friend is to be one”

As people made there way into the auditorium, they didn’t know what to expect from well known motivational speaker and corporate trainer Paddy Spruce. Perhaps they were hoping Paddy could provide them with some inspiration, motivation, energy and optimism during these tough economic times.

As soon as the audience got themselves comfortably seated, Paddy asked the people sitting at the back to find a seat closer to stage. As this happened and people found seats next to strangers, introductions were being made left, right and centre. One of objectives of the session had been achieved! New friendships were being made amongst the CPA revellers!

Paddy began his presentation by outlining some key points on how to make a great first impression and also how to influence people. Although a lot of these points were nothing new to a lot of people, I thought to myself how some of these simple points that Paddy raised could dramatically enhance ones relationships, both personal and business.

Whilst Paddy provided the audience with plenty of useful tips and pointers, some of the key points I took out of the presentation included:

Make a good first impression

• Dress to impress
• Smile
• Firm handshake
• Look the person in the eye
• Remember name
• Look interested

Winning friends

• Become an optimist
• Listen more than you talk
• Don’t complain
• Be loyal and reliable
• Offer help
• Drop your ego

In relation to the last point, “Drop your ego”, Paddy spent some time talking about “ego”. The points that he raised were all valid and I couldn’t help but think of my colleagues, clients and friends who had a big “ego” and whether they were successful at “Winning friends”. And Paddy was right, people with an ego are often too focussed on themselves, they are often controlling, need to be superior, have a false sense of self, they live in the past, likes attention and conflict. How can someone with such traits be optimistic, a good listener, offer help? The key points to “Winning Friends”. Funnily enough, David Gonski’s in his presentation later that afternoon mentioned that he won a lot of business by stroking peoples ego!

At the end of the presentation, whilst I did not feel like I had drunk ten Red Bulls, it did make me think about how I could improve on my personal and business relationships and how to make a good impression! All of this takes time and assessment of yourself…time to turn off the ego!

We hope that our readers find this useful in terms of developing new contacts and forging stronger relationships with staff, clients and industry contacts. Professional services and particularly accounting is very much a relationship business. This was a point raised in the small business enterpreneurship session yesterday as well. It is definently an area we can all continually improve on.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team.

Speaker: Craig Melcer
Corporate Business Analyst
Boeing Defence Australia

This session was focused on several case studies based on the presenter’s work experience. Primarily, it dealt with two management accounting issues:

• Activity based costing
• Making strategic decisions – for M&A

Admittedly, this session started out as not really interesting or engaging. Our reasoning is that it had to do with the examples, which were a bit hard to relate to and also it seemed like the presenter was describing his career most of the time! The first two examples were from his experience at Queensland Rail (QR) and applying for a government tender. The other reason we couldn’t get into the presentation was because there were a lot of details and figures presented in the powerpoint slides, and we were sitting up the back and had a hard time viewing it. We spoke to another particpant and they expressed similar feedback.

The highlight for us was when the presenter said his interest as well (from his own career perspective) was on M&A, and how the numbers started to drive the business strategy at Boeing. This we liked =)

Case studies 1 & 2: Queensland Rail

Firstly, lets briefly discuss the case studies. He spoke about activity based costing and how they changed the reporting structure at QR. It was orginally structured towards responsibility cost centres. The reporting was not sophisticated enough to get down to category level. It also a required a culture change for line of business.

He then described a Government tender response. QR had a monopoly over coal haulage. In applying for the government tender, they had to consider what the competitor cost structure would look like. However, there was no other significant provider (being a government owned monopoly tends to to that!). There were only small competitors. They needed to consider what freight rates their competitors would charge. Further, if their competitors were tendering, QR had to be lower than this. In response, their competitors would predict this and also come in at a rate lower as well. Its clearly a never ending cycle where everyone is trying to play a “how long can you go game”!

It was important to align QR coal with industry standards. They also needed to compare the different kinds of locomotives (i.e. whether it was going to steam) and the efficiencies.

Importance of financial modelling

One of the key takeaways we got from this session was the importance of financial modelling. In a financial model, take into account scenarios for different costs of inputs and outputs. As accountants it is imperative that we consider these different scenarios and make management aware of this. Hence, this assists with business planning and also survival! It becomes a key decision making tool for capital investment and allocation of scarce resources when costs rise.

Accounting drives business strategy

Craig left his position at QR to join the Boeing Mergers & Acquisitions (M&A) team. Prior to his arrival, the team had been mainly comprised of strategic personnel. We assume this means management consultants or staff with those kind of high level strategic skills. In his time, he reviewed five M&A proposals which resulted in 1 successful acquisition.

A important point he made was the importance of accounting numbers and expertise he brought to the table in these discussions. It is a similar situation when staff in other non-accounting business units start throwing ideas around without considering the cost or profit impact. There has to be numbers to back it up.

Part of any Boeing acquisition required it to meet certain criteria, which we found particularly interesting:

• Financials: fit of the acquisition. Boeing company as a whole was going to benefit
• Market opportunity: Would this position Boeing for new markets and adjacent markets
• Customer needs addressed
• Investment required
• Ethics, business image – Boeing did not want a company that would tarnish their image
• Capability to do it in house

Normally, Boeing looked to the strategic fit first and then the financials. This was because the financials were not always available in initial M&A discussions. As someone that has worked in M&A, we fully appreciate this as there is a process of due diligence.

The fundamentals that you need to consider in buying a business:

• Revenues
• EBIT
• EBITDA
• Free cash flow
• Capex
• NPAT (Net profit after tax)
• Net assets
• Economic profit

There was also some discussion around valuation which was interesting. What a company is worth depends on the buyer. It depends on assumptions regarding growth and profitability aspects, but also fit. A pertinent point he made was that “valuation is a minimum for going in”. That is, it the business value justifies going after the purchase.

We mentioned fit and you need to consider stand alone versus synergy valuations. Considerations such as:

• What kind of markets could we now enter
• could we win further work we previously couldn’t have
• Measure of incremental value captured: what is the dollar value of what you can earn, as this demonstrates value

Conclusion

It is clear that in accounting information does drive business strategy – in terms of resource allocation, business planning, tenders/pitches, and decisions to acquire businesses.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team

One of the more entertaining sessions of the day was by Craig James, Chief Equities Economist at Comsec. He spoke about the challenges and opportunities that lay ahead for 2009/2010 (i.e. the next 12 months). A session that not just accounting people needed to hear, but business people too.

It was one of the keynotes in the larger auditorium and attracted an audience of approximately 1,000 people. A very live and energetic performance to start the day!

Craig would present many numbers, charts and economic facts, but he reiterated that the question that we need to ask ourselves is “so what?”. As in how does this apply to our circumstance, either our business or personal situation – what does this mean for me?

Despite all the negativity we have been reading in the press and in the workplace about our economy, we were shocked to hear that Australia is the ONLY advanced nation that is growing!

Australia is one of of 4 countries to have not gone into recession and was the first G20 country to lift interest rates. So we must be doing something right. We have avoided a recession (two quarters of negative economic growth). The December quarter went backwards, but March and June quarter have gone forwards.

The general impression that we got from Craig’s presentation was that if you looked under the hood, the Aussie economy is quite robust =) We did not feel the same economic shocks as other Western economies such as the US or UK.

Challenges and Opportunities

The challenges and opportunities that we face in the next 12 months are that businesses will realise that the coast is now clear and people will start to come out of their foxholes. Business will start to operate again, at levels they were used to previously. However, this is going to the toughest time for most business as they will start to compete for clients, staff and business. Employers will also look to put on more staff to meet demand. We have also noticed a rise in job advertisements. Australia has survived the recession as this evident by how high and quickly interest rates are going up.

There will be continued focus on China and Asian nations. In general, the world has been in recession. The countries hardest hit have been the major financial centres. However, India and China continue to grow because they are industralising their economies. These economies were growing before the recession and are now ramping up again. The other countries that are experiencing growth are Egypt, Vietnam and Pakistan – three very unlikely countries!

For our domestic economy, Tasmania and South Australia were not affected as much by the GFC. Victoria and New South Wales have been affected the most. This is because Tasmania focuses on domestic markets and not servicing global markets.

China

China has picked up significantly and this economic upturn is strong . We can be confident because it is driven by their own cash payments. Compare this with the US, which borrowed significantly to fund their economic stimulus.

With 1.3 billion people going down the path of industrialisation, this is going to be present a myriad of opportunities. They will want washing machines, cars, tvs, etc…There will be a huge class of people demanding consumer goods. Australia has accounting, marketing, wealth management services which we can offer to support this demand.

China will be passing the US economy in approximately 8 years. Scary isn’t it? And it is our largest trading partner. For further discussion on China, we’ll have a separate post on the China-Asia relations session.

So why did Australia survive the recession?

There were several reasons which Craig pointed out, namely:

• Our infrastructure was strong
• Government acted decisively,
• We drove revenue and incomes higher instead of cost cutting.
• Our largest trading partner is China and they have started to rebound

A fundamental difference between our economy and the US is that Australia has an undersupply of housing. There countinues to be growth in our population driven by migrants and the birthrate. So housing is an area that is growing.

In addition, the $AUD had been decreasing which made our exports cheaper relative to other nations. In particular, this would have  benefited commodities. Also, domestic companies did not go through the phase of slashing and burning staff and costs which overseas companies experienced.

There was certainly fear in the market driven by what was happening overseas. Mainstream media was reporting daily on the financial crisis. It was really the first global crisis in the internet era, which created an explosion of information at our fingertips. We had an awareness of the global economy and we reacted accordingly (i.e out of fear!).

The sharemarket is picking up and wages continue to rise. There are real wage gain which is supporting people. Inflation has also remained at 2%. So in effect, workers have more income and prices have not increased, which means they can purchase more. Petrol prices was also cheap and interest rates were low in the last 12 months. All these factors combined to assist Australia to survive the recession.

The opportunities

There will be opportunities in the housing sector. Obviously this will pick up work for people in construction, but also flow on to others in the industry such as draftsmen, builders, architects.

Education is also a sector to watch. Previously, the government spending was $1.5m a month and the spending will be increasing to $3.8BN (we presume this is annual!). This has potential benefits of spreading money through the economy.

For the job market,  there will be a creation of more than 40,000 jobs. In the past 12 months, businesses elected to hold on to staff instead of making them redundant. This occured by cutting back hours or pay. Effectively, it maintained their presence and service quality.

Other issues

We’ve lumped these together for brevity:

• There was a brief discussion on the AUD. It may continue to rise! So there needs to be a recalculation of inputs and outputs.
• A sign of the recovery will be petrol prices, so ensure you keep an eye on this. Consider what it means for people buying petrol.
• Migration has been at its highest level on record. This adds growth to the economy as it creates demand.
• Changing climate: There is a lot of mention about emissions trading/global warming. We were shocked to hear that the average temperature of cities has been rising. What is the effect on seasonal demand for goods and services?

COMSEC Economic Forecasts

AUD

$0.93 Dec 2009

$0.98 June 2010

Unemployment

6-6.5% Dec 2009

5.5-6% June 2010

Sharemarket

4,900 – 5,100 Dec 2009

5,300 June 2010

Economic growth

Small rise in Dec 09

2-2.5% June 2010

Inflation

2 -2.5% average 2009

2.5%-2.75% average 2010

Insights for tax

The economic signs were positive, business confidence looks to be picking up and so is the job market. For tax, this means that there should be increase in profits and taxable income, and hence tax revenues. This will be further aided by a growing population driven by migrants and birthrate.

Opportunities in the housing sector could mean more sales of property, which leads to capital gains tax.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull.

We will do a write up of each of the three days we are attending, including a separate write up of some of the key sessions we were allowed access to. By way of disclosure, we were guest bloggers with media access and given permission to cover certain sessions at the conference.

Our overrall impression was that the conference was really well run. The sessions generally ran on time and they even had a gong lady (i.e. a lady with a huge cymbal) that would signal that some of the sessions were starting! There were tea breaks inbetween and you could congregate in a common tea area for coffee, water, muffins and biscuits. In that area there were also exhibits where you could check out vendor services.

Sessions

There was a variety of different sessions to select from. Participants had to preselect which sessions they were attending, as some of them such as the roundtables had limited capacity. It was the first CPA Congress we have attended, and we actually thought it would have more accounting focus on the sessions but it was more of general business nature.

This year’s theme is “The Way Forward”, which focuses on how business will address the upcoming challenges of the global financial crisis and forge their way ahead. It is a conversation that has dominated business in the past 12 months in the workplace, with clients, suppliers, and within the accounting profession. Overrall, most of the presenters were optimistic about the next 12 months, as the Australian economy did not go into as deep a recession as other economies, and we are recovering a lot faster.

We attended a monster lineup of sessions! Check it out:

• Keynote 1: Challenges and opportunities: The economy in 2009/10
• Business Roundtable: The economy, financial markets and your business – Part A
• Using accounting information to drive strategy
• Business Lunch: Sports Panel – Strategy, leadership, and teamwork
• China/Asian business overview
• Achieve more for less – building a company, building a brand and building a life
• Case Study: NASA – managing risks in complex environments
• Complementary session: Beyond the downturn – getting ahead in small business

As you can see it was quite a lot! We will post a write up of a few of the sessions we attended.

Each session had a moderator and a presenter, and was generally full. The first keynote had approximately 1,000 attendees, possibly more to hear Craig James, Chief Equities Economist of Comsec speak about the state of the economy. Throughout the day the numbers fluctuated and you couldn’t tell how many people were at the conference as people funneled off to their respective sessions. However, by lunch time, everyone gathered for the business lunch, and the place was packed! Nearly every seat was taken. There had to be easily 700 people at that lunch.

We have a lot of great photos from the lunch including one with retired basketball star Andrew Gaze, and new CPA President Alex Malley.  We also took plenty of photos throughout the conference which we will post onto Flickr at a later date, and also within some of the posts.

Roundtables

We accidentally walked into one of the Roundtable sessions. There was a bit of a mix up, but we’re pleased to say that we did attend.  The Roundtables are closed sessions, where there are three big roundtables with an expert on each table. Participants get to ask questions of the expert on their table. As the questions were more of a personal nature for the participants, the media cannot report on the content of those sessions. What we can blog about is the format.  We liked the sessions as they were that it was more of an intimate affair, as people get to ask questions relevant to their business or situation.

It is a striking contrast to the lecture style presentation in the large auditorium where the presenter is talking to a large crowd. Having small groups facilitates greater group discussion. However, to get the most of the session, we encourage particapants to come with pre-prepared questions to kick off the discussion. You will find that one discussion will lead to others jumping in with their points and questions flowing from that. So come prepared!

The venue

We’ve have been to Darling Harbour convention centre several times in the past for conferences. But they have usually been in one place (i.e one auditorium or just the main hall). This was the first time we’d been to a full day session with a lot of different locations.  For someone that spent the whole day there, we were quite confused as to where to go. Eventually we realised we needed the timetable booklet. It had a map inside, but it was too small.

So it was just easier to ask the CPA staff and Sydney convention staff around the place. There were certaintly a lot of them around, so we quickly found out where to go. Perhaps next time they could print a bigger map on an single A4 page. By the end of the day, we knew the whereabouts of the rooms so Day 2 should be a lot smoother for us.

The Taxabull team is attending the CPA Congress as a guest of CPA Australia.

You can follow us on twitter: twitter.com/austax

Cheers,

Taxabull team.

The CPA Congress is a conference held throughout Australia and Singapore. It will be in Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth! We’ll be attending the Sydney conference.

We’ve been looking forward to it for some time now.  The theme of the conference is “The Way Forward”, which is how we will address the current GFC environment and move forward.

CPA congress

We’ll be attending over 3 days from Tuesday to Thursday next week. There are plenty of great talks scheduled. There is a mix between accounting, finance, HR, economics, fraud, and leadership from a variety of business leaders.

We actually had a hard time choosing between them! After much agonising and splitting hairs, we decided on the tax one (of course!), as well as some sessions about general business and leadership. These are some of our choices:

• Tax Reviews and Reforms: Implications for NSW businesses
• Five financial ‘must do’s’ for small to mid-market organisations
• Leading a company through a marketplace in turmoil
• Business roundtable: Strategies to handle staff redundancies and organisational change – Part A

Some additional notes for anyone attending:

• If you are a CPA member, please note it down because attendance at the conference will count towards CPD (Continuing Professional Development) hours.
• For unemployed and retired there is a discounted offer of 40% off! So make sure you check that out.

We have a media pass to the conference and will be blogging so make you check up on our blog next week. You guessed it, we’ll also be active on twitter via @austax!. If you are attending the conference or are interested in following it on twitter, the hashtag is #CPACongress.

The CPA team is also blogging here and will be twittering via @CPAAustralia.

Cheers,

Taxabull team.