Strategy and strategic planning – allies in the hunt for long term success

29. May 2018 12:42 by Jason Kelley in

 

                                                                

Every company should have a vision. Every company has resource constraints, be it financial or human. The question is, how do you achieve your vision while optimizing your available resources to maximize value? A good start is to develop a coherent strategy, well formulated and adapted to the company and its environment.

There exists an almost infinite number of definitions of the concept strategy. Alfred Chandler in 1962 defined strategy as “the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” (Source: Alfred Chandler, Strategy and Structure: Chapters in the history of industrial enterprise). Michael Porter in 1980 defined strategy as the “…broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals” and the “…combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.” (source: Michael Porter, Competitive Strategy). Thus, the concept strategy covers goals, means, and resource allocation.

Creating a strategy is, however, only part of the equation. There are good strategies and there are bad strategies, the crux of the issue is how well do you execute it? An adage says that it is better to have a well executed poor strategy than a poorly executed good strategy. In short, a strategy is not better than its execution. This is where strategic planning comes in.

Strategic planning is about creating a road map for executing a chosen strategy. It is a quantitative exercise, but a well-designed strategic plan goes way beyond simply being a long term financial plan. It represents the outcome of the strategic discussions held and the choices and decisions made. One should not confound strategic visions and objectives. Growing by X% is an objective, strategy is about how you get there. As such, the qualitative aspect is at least as important as the quantitative ones in the strategic planning process, which is about a lot more than simply defining future growth and revenue targets.

Going forward I will provide my thoughts and insights into various aspects of the strategic planning function and how it can bring value to organizations of all sizes. In the meantime, thoughts and comments are welcome.

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The Ability To Pay

19. May 2018 12:17 by Zach Haris in

The reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. When an attorney is approached by a potential client who is claiming injury or economic loss, the attorney will consider whether a theory of liability can be developed against a party who can pay a judgment. This is called the search for the “Deep Pocket Defendant.”

The Deep Pocket Defendant will have substantial insurance coverage or significant personal assets. The measure of an attorney’s skill is his ability to create a theory of liability which will connect a Deep Pocket Defendant to the facts of a particular case.

Here is an example of what might happen in a particular case. Mr. Wilson is driving in his car. Mr. Fineman runs through a stop sign at an intersection, smashing into Wilson’s car and causing Wilson severe injury.

From his hospital bed, Wilson Googles “local attorneys” and calls the first attorney he sees, Alan Abel. He is what is known as a “contingent fee” lawyer. He works for a percentage of the ultimate recovery and determines whether to invest his time and money in a case based upon what his expected return will be. Since the time and expense of preparing for litigation can be considerable, an attorney cannot afford to take a case that is not likely to pay off. Remember—no recovery, no fee. Usually the attorney advances all costs and expenses, and in exchange, he recovers these costs plus 30 percent to 40 percent of any amounts that he can get from the defendant.

Before Abel decides to take Wilson’s case, he will want to do some serious research to determine the merits of the case. Not the legal merits—the financial ones. He will want to know whether Fineman has substantial assets in order to make the case worthwhile.

Abel runs a financial search and determines that Fineman has no insurance and no significant assets such as a home or a retirement nest egg. What happens? Is that the end of the case? As for Fineman, it probably is the end of the case. Abel is not going to waste his time suing someone who can’t pay. But Abel is not going to give up so easily. He has a client with substantial injuries and that means a large damage award—big bucks. But first he has to find someone who can pay.

Here is how a successful lawyer would analyze the case to try to draw in a Deep Pocket Defendant:

    1.  Was Fineman on an errand for his employer at the time of the crash? If so, the employer can be sued.

2.  Did Fineman have any alcohol in his system? The restaurant that served him may have liability.

3.  Was Fineman on any medication? The pharmacist, drug company, or physician may have potential liability for failure to provide proper warnings, or for writing or filling the prescription improperly.

4.  The stop sign Fineman ran through was in a residential neighborhood in front of someone’s house. Did the homeowner properly maintain his property and clear his foliage to provide an unobstructed view of the stop sign? If not, there is a case against the homeowner for negligence.

5.  Did the municipality take due care in the placement of the stop sign? Should it have used a traffic light instead? There may be a case against the city or county.

6.  The driver’s side door of Wilson’s car collapsed on impact. There is a possible case against the manufacturer for not making a more crash resistant frame.

Do you see how far we are moving away from Fineman—the person responsible for the accident—in an effort to tie in a remote Deep Pocket Defendant? In any rational legal system, Fineman would be regarded as the wrongdoer—he disobeyed the traffic law and he caused the injury. Instead, we have an attorney trying to force the blame onto someone else—who wasn’t at the scene and doesn’t even know the people involved.

The example that we just gave you is taken from a real case. Guess who ended up as the defendant.

In the actual case, the defendant was Fineman’s ninety-two-year-old widowed great-aunt Ellen. As it turned out, she had purchased the car for Fineman as a gift to him. Abel’s private investigator searched the assets of Fineman’s relatives and found that Aunt Ellen had a house that she owned and some savings in the bank. She was named as the defendant in the case and was found liable on a theory called Negligent Entrustment. The jury found that she should not have bought the car for him. She should have known that he was a careless driver and might cause an accident. She caused the accident by buying him the car. The verdict was for $932,000, and Aunt Ellen lost nearly everything she owned.

The point of all this is that the foundation of every lawsuit is a defendant who can pay. Once such a defendant is located, it is easy enough to construct a theory of why that defendant should be responsible. Judges and juries often act on their emotions—not on the law. And when the contest is between an injured or a sympathetic plaintiff and a wealthy or comparatively wealthy defendant, the plaintiff will win virtually every time, regardless of the defendant’s actual degree of fault.

As a result, the plaintiff’s attorney will search for a party who can pay a hefty judgment. In the old days, it was said that “He who has the gold makes the rules.” Now the saying goes: “He who has the gold pays the plaintiff.” The fact is that no matter how remote your connection to an injury, if you have even modest assets, an attorney for the injured party will attempt to show that you are somehow legally at fault and you will be named as a defendant in the case.

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3 Hidden Problems That Surface When Building A Payroll System

9. May 2018 10:45 by Jason Kelley in

Every entrepreneur dreams of having a well-oiled payroll system with zero hiccups. Unfortunately, business dreams rarely reflect reality: payroll is complicated and ever-changing.

When implementing a payroll system, you should expect to devote some time to troubleshooting bugs, smoothing the processes, and learning from unexpected fires. For reference, my co-founder and I have devoted more than a year to fully learning the ropes of our financial, payroll, and accounting software.

At the same time, payroll is something that countless businesses have already done. Even though every organization is different, there are some problems that you can avoid off-the-bat.

There’s no need to reinvent the wheel. Here are some common problems that entrepreneurs can avoid, avoid, avoid.

Payroll Problem #1: Mismanaged Taxes and Deductions

There are many moving parts to your payroll system. From a tax and deductions perspective, Charles Read, president, and CEO of payroll advisory company Get Payroll encourages business owners to watch out for the following:

  • Pre-tax deductions that have been treated as the post-tax deduction by the business or a previous service bureau. (Usually Insurance)
  • Lack of child support garnishments being processed.
  • Not understanding the requirements and rules for child support garnishment enforcement.
  • Back taxes and penalties that have not been filed or paid.
  • Not getting all prior wage and tax info.
  • Manual paychecks recorded only in accounts payable and not in the payroll for tax reporting or filing.
  • Uncashed payroll checks that need to be submitted to the state.
  • Employees not actually on the payroll.
  • No written policy for paid time off.
  • Family members not on the payroll for tax purposes that should be.
  • Misclassification of employees as independent contractors and vice versa.
  • No written cafeteria plan.
  • Benefits/bonuses/gifts/etc. that is income to the employee not being recorded as payroll.
  • Tax avoidance scams that the company has bought into that are illegal.
  • Not registering in all of the States that they actually have employees in.
  • Not recording executives as employees.
  • Buying a shell company without checking on the actual state unemployment rate the shell has in place.
  • Not understanding overtime rules.
  • Not understanding that Labor Posters can be had for free.
  • Not understanding the Fair Labor Standards Act.
  • Misuse of training wage provisions.
  • Not understanding the goals of the US Department of Labor and The State Unemployment department.
  • Not knowing about New Hire Reporting.
  • Not keeping adequate records on payrolls for IRS purposes.
  • Not understanding or knowing the rules for depositing and filing employment
    taxes; federal, state, local.
  • Not filing 1099s.

The best way to avoid this (partial) list of potential issues is to work with a tax advisor or consultant off the bat.

“Employers who try to deal with the IRS themselves get into the worse hot water,” explains Read. “It’s advantageous to work with a CPA who is a payroll processing expert instead.”

Payroll Problem #2: Communication with Employees

Remember that your team does not have the same insight into your payroll system that you do as a business owner. Sometimes, from an employee’s perspective, the numbers don’t add up.

“A major problem that can surface when building your payroll system is tax withholding, as well as changing the number of exemptions, explains AJ Saleem, who owns a start-up tutoring company, Suprex Tutors Houston.

“Certain employees would prefer a different way to withhold money and this can be a concern.”

One way to resolve potential miscommunication—and unnecessary employee disgruntlement—is to work with a benefits administrator. If you’re unable to hire a full-time point person for HR, consider working with a consultant or outsourced firm that can help your team members understand their withholdings.

Ensure that every employee feels confident in coming to you with questions. Communicate that payroll can be complex to manage, so everyone within your organization understands your side of the story too.

Payroll Problem #3: Business Unit Segmentation

Business owners need to track payroll across multiple departments and teams for effective cost management, forecasting, and future hiring. A common mistake occurs when business owners don’t prepare themselves at the infrastructure level to track wages across departments.

“If a client wants to track wage costs across different departments, the mapping must be setup correctly inside the payroll system,” explains Thomas J. Williams, a tax accountant who operates Your Small Biz Accountant, LLC.

“Otherwise, all the earnings are placed into one wage account, making the payroll reports inaccurate.”

The key to building a structured payroll system is to know your growth plans and trajectory. How will you want to track costs across teams, long-term, and how will these metrics involve your cost management and investment decisions in the future?

Avoid ending up in a payroll system laundry pile by creating clearly defined segments off-the-bat.

Final Thoughts

Streamline your payroll operations before your business goes through its first major growth spurt. And if you’ve already gone through a growth spurt?

If your business is showing signals of a potential upwards trajectory whether you’ve been in business for six months or six years,, the best time to streamline your payroll is now. The ideal time is when you hire your first employee or have the capital to invest—signals of a sustainable operation.

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Is Virgin Australia’s long term strategy secure?

26. April 2018 16:50 by Selina Stewart in

 

                                                

On a regular basis we review the strategy and direction of businesses. It is not a financial analysis, but a review from a strategy perspective. In this blog we will review Virgin Australia (the domestic premium airline wholly owned by Virgin Holdings Ltd). Virgin is holding its own, but is it due to good strategy or is Virgin just lucky?

The Australian domestic airline industry has been a profitable market, not necessarily due to its size, which is quite small by global standards, but more because the number of competitors has historically been limited. Currently the premium end is serviced by Qantas and Virgin Australia, while the low cost niche is serviced by Jetstar and Tiger. Some argue that we have for many years really had a duopoly, and as both the low cost airlines are owned by the premium parent, this technically hasn’t changed.

 

Has Virgin Australia been lucky with its profit improvement or is it clever strategy? In my view it has been a bit of good luck in a big reduction in prices of inputs such as oil and a lack of competitive rivalry rather than great strategy. For example, recently Qantas and Virgin reduced capacity and airfares increased.

In the following analysis I rate their Mission (Purpose), Vision, Sustainable Competitive Advantage and their current strategic focus.

Business Mission /Purpose – Why do we exist?

The Mission/Purpose states the businesses reason for existence. It gives focus to the employees, customers and the wider market what a business does and doesn’t do.

Virgins Australia’s stated Mission (Virgin call it their strategic objective) is to “Become Australia’s best customer led organisation.”

If this is Virgins mission it is too broad, lacks focus and could apply to any organisation. Maybe a better one could be, “We ensure Australia travelers arrive at their destination safe and happy every time.”

What would that mean? – No delays, quality food, newest planes, happy staff and so on.

Business Vision –What is their aspiration?

Virgin Vision to 2017 is to become Australia’s favourite airline group. (Source Virgin Australia media - 2014)

“Over the next three years, the Virgin Australia Group will focus on six key areas: capitalising on growth business opportunities, driving yield enhancement, implementing a new cost program, optimising the balance sheet, setting a new standard in customer experience and developing our people to their full potential”, (John Borghetti)

The Vision passes the “stickability” test. “To become Australia’s favourite airline group” is simple and memorable. It is something to aspire to.

What is Virgin Australia’s Sustainable Competitive Advantage?

This is where I think Virgin is lost. They started in Australia as the low cost airline. Their SCA was clear. They eliminated services such as meals and charged a lower price than Qantas. It worked well. Then Jetstar arrived, and Virgin was caught in Death Valley. They were dearer than Jetstar and so got caught in the middle. They were no longer the true “low cost” carrier, nor were they the full service airline which attracts the business market like Qantas. John Borghetti is trying to reposition Virgin as a premium airline, and if you look at their tactics, they have introduced business lounges and free snacks and meals on all flights to try and compete with Qantas. So what is the problem?

The problem for Virgin is getting Qantas customers to switch. With history from the low cost days still around such as Melbourne’s Virgin terminal (Which is very dated and looks like a low cost terminal) Virgin are sending mixed signals to the market.

 

Three way strategy test

 

I have a three way test to see if a strategy is working.

  1. Is your strategy externally consistent? – Virgin is trying to show the Australian travellers that they are now a premium airline; however evidence suggests that externally they are inconsistent. For July for example their cancellations were higher than Qantas, and their on time departures were not as good as Qantas. Melbourne terminal for Virgin is very dated, and their “Free” meals and snacks are not on a par with Qantas.  To really challenge Qantas, Virgin need be the best, otherwise why would travellers switch?
  2. Is your strategy internally consistent? – This test is checking if internally, they are consistent to their strategy. That is working on the right issues, employees are consistent and processes are consistent. It appears that they are working on the right issues, but as an outsider it is hard to tell.
  3. Is there dynamic consistency with your strategy?  - This test is to see if the strategy fits with the ever changing external market place. Virgin is fortunate that Australia has a history in many industries of two major players. Think food retailing of Woolworths and Coles, Packaging, Amcor and Visy.  Our small market size in many industries deters interest from new entrants to come into the market. At the premium airline end of the market we have Qantas and Virgin. There will always be room for two, and so Virgin should survive. However, like in the supermarket industry, if a new entrant like Aldi came in, Virgin could be more vulnerable being the weaker of the two airlines
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How To Negotiate With The IRS When You Have A Large Debt

17. April 2018 16:49 by Selina Stewart in

A lot of hardworking taxpayers don’t think it’s possible, but you can actually negotiate with the Internal Revenue Service (IRS) if you happen to have a large debt. The IRS’ sole existence is not to ‘get’ you. Many times, they are looked at as the bad guy—the villain who’s out to take all of your hard-earned wages.

What are Taxes for Anyway?

The fact of the matter is, if you like your living conditions, the way the streets are paved for better transportation—if you value the convenience of public transportation and things like your trash and recycling getting picked up, if you can appreciate the technology of the traffic lights (depending on where live in the country, maybe not), or maybe you’re just thankful for brave servicemen like firefighters and law enforcement patrolling the streets to make you feel safe, then you might want to start feeling OK with paying taxes!

How Does the IRS Determine How Much Taxes You Pay?

Now, we realize the actual problem comes when you discover that you owe and your annual income doesn’t seem like it’s enough to make ends meat—so how is it that you ended up owing Uncle Sam?

Well, there are a couple of reasons why you may owe the IRS a lot of money. Perhaps you didn’t fill out your W4 employment form right and you’re not getting enough taken out of your check during the year. Are there any unreported wages? There could be a mistake in your filing. One transposed number can throw everything off.

Don’t Try to Cheat the IRS

Don’t assume that the IRS will see an error on your right away. That’s what audits are for! And maybe, just maybe the IRS made an error. It happens.

Whatever the reason is for you owing the IRS, be encouraged that all is not lost. The IRS is reasonable and will work with you. All you have to do is call them and let them know that you understand that you owe, but you would like to negotiate a payment plan. Now, there are a few ways you can go about this.

Working Out a Deal

You can actually negotiate your tax debt to less than half of what you owe depending on whether or not what you owe is substantial. For instance, if you owe $1,000, the chances are pretty slim that the IRS will reduce that amount. At the very least, they may compromise with an affordable monthly payment for you to make. If this is the case, take it! The terms are strict though. One missed payment—even if you are late, then the deal is off and you’re back to owing $1,000 in full. If you’re late, then interest and late fees build on this amount, increasing the total amount you originally owed.

Sounds scary? It is. But it doesn’t have to be.

We have been in the business of alleviating taxpayer’s debt for over 30 years. We know what we’re doing.

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Not one but two - The power of having a dual strategy!

7. April 2018 10:11 by Megan Kunis in

            

     

Michael Porter's view is that when businesses speak of strategy, it is their relative competitive position in the marketplace to their competitors, that is the only true strategy. For example it might be taking a cost leadership position or a high end quality position. His view is that if companies try to target a number of strategies, it leads to confusion both for the customers and internally for the business itself.

Porter's view is that to be truly successful, a business should focus on one strategy and nail it. Porter quite rightly argues that all other business initiatives e.g. outsourcing to low cost countries, acquiring a competitor, or eliminating waste, are in fact not strategies, but ways in which businesses achieve their single strategy, which is their "SCA".

Mindshop's "Sustainable Competitive Advantage" or "SCA" tool is a good practical approach to define your businesses competitive position. 

A company that is challenging Porters view and is in fact smashing their competitors through a dual  approach to strategy is Singapore airlines. Many have said it cant be done, but a study in the July 2010 Harvard Business Review showed not only a company adopting a dual strategy of cost leadership and high quality very well, (one example cites airplanes with the best first class seats in the world, while high level executives work out of an airport hangar in Changi airport), the airline also leads all the key indicators of a successful global airline such as profitability, customer satisfaction, cost per km and so on.

Whether your business model is defined by a single approach to strategy, or dual approach to strategy, make sure that it is clear, and not only resonates with your customers, but also gives your business an edge on your competitors.

Next week in this series of "burying your old business model", we will look at innovation, with some great examples of some businesses who are thriving in some of the toughest industries using innovation.

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How Trump’s New Tax Plan Might Affect Your IRS Debt

31. March 2018 13:21 by Zach Haris in

It’s really too soon to tell how any changes within the Trump administration will affect taxes, but one thing is certain, if you are currently in debt with the Internal Revenue Service (IRS), it is fully expected for you to pay what you owe. That’s not going to change no matter if the taxes are raised or lowered.

Stay Focused! Do Your Due Diligence.

It’s important to not let your emotions get in the way of your financial obligations to the IRS. No matter who is in office, as United States citizens, it our responsibility to uphold our part and pay the taxes we owe. If for some reason you believe that the amount that you owe is incorrect, you have a right to contest these numbers. You can do this by mail or telephone, although we recommend that you do both—in that order. This way, you’ll have written documentation that proves you’re actively communicating with the IRS, and speaking to a representative by phone will show that you’re following up accordingly.

Need Help with That?

We realize personally speaking to the IRS can be intimidating. That’s why the professionals at Success Tax Relief, a tax relief firm is staffed with a team of tax experts to communicate with the IRS on your behalf.

Back to the Whole Tax Thing!

We realize that you still may be a bit concerned about how Trump’s new tax plan might affect your taxes in the years to come.

The plan has been described as “Reagan on steroids”, a plan that follows the concept of the ‘rich getting richer and the poor getting poorer’—all in theory, of course!

According to White House Reporter, Matthew Nussbaum ,who tweeted a photo of the one-page 2017 Tax Reform for Economic Growth and American Jobs, are as follows:

  • The standard deduction will double, but many tax breaks will no longer be available to individual filers except for home ownership and charitable contribution—this will reduce a number of deductions that you’ll be able to claim.
  • Tax relief will be provided for families with dependent care expenses.
  • “Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers”
  • Repeal:
    • Alternative Minimum Tax
    • Death tax
    • Obamacare
  • For businesses, the overall objective is to level the playing field of the territorial tax system for American companies.

In a Nutshell…

The plan reportedly is not projected to decrease the country’s deficit until after 10 years from now, and it will need a straight party vote. So, as of right now, there’s nothing to be actively concerned about, because it’s too soon to tell. It also doesn’t have much to do with you pay the IRS what you owe.

What Can You Do?

The best thing to do during this continuous transition is to continue taking care of your financial obligations. Maxfinancials.com/taxationandadvisory can help you along with this process. We work on your behalf—not for our benefit.

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Hummer Manufacturer’s Warranty Term Is Increased

12. March 2018 11:48 by Zach Haris in

To keep up with the luxury SUV market Hummer has extended their manufacturer’s warranty
Great news for Hummer owner’s looking for extended warranty protection. Now that all 2006 Hummers will be coming with a standard 4 year/50,000 mile warranty plan Auto Advantage Inc., an industry leader in Hummer warranties has reduced the pricing to warranty them for an extended term. This price reduction affects the Hummer H1, H2, and H3 models. The 2006 H1 Alpha which is already available for sale is the first model to come with the new, longer manufacturer’s warranty coverage.

Though Hummer owners all rave about their own experiences, they will also tell you that these vehicles are one of the most expensive vehicles on the road to maintain and have repaired. That is why Hummer extended warranty sales have soared over the past few years. Now with the new reduced pricing, warranty sales are expected to increase over the next year or so by about 40-50%.

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Financial Reporting and the Law

23. February 2018 10:26 by Jason Kelley in

 

                                               

Morgan Lewis is a global law firm that practices financial, international, and commercial litigation that includes tax and estate planning forms of law, among others. Its blog informs both the company’s clients and the broader populace of the latest developments and financial regulations affecting how businesses and industries operate their accounting practices. Up and coming accountants who are planning to specialize in largescale financial services would do well to pay attention to this series of law blogs.

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Auto Repair Shops Continue to Fight Dealers

8. February 2018 17:59 by Selina Stewart in Auto

Dealers hope you aren’t concerned enough to complain about their computer overrides, disallowing independent repair shops from repairing vehicles.

Now, two or three times per month, his computerized diagnostic equipment shows unknown codes when hooked up to an auto with a problem.

"The scanner gets codes, but no translation comes up, meaning the information hasn’t been released," Danneman said.

Manufacturers aren’t allowing shops access to some of the information they need to repair today’s computerized automobiles. They aren’t allowing independent’s to include the information in diagnostic tools that can be used on many different types of vehicles.

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