Does Your Organization Need A Contract Leakage Study?

19. October 2018 10:50 by Selina Stewart in

Best-in-class organizations regularly measure the performance of their contracts through internal metrics and against industry standards and leading practices. Robust contract management drives compliance, efficiency, and value through the utilization of key performance and financial metrics and effective implementation of controls across the lifecycle of the contract.

 Managing leakages from third-party contracts (whether it is customer-side contracts or vendor-side contracts) is an ongoing challenge for most organizations. This is increasingly true in today’s business environment where improving margins and reducing costs are priorities. The likelihood of value leakage is higher in case of contracts with higher complexity (in terms of scope, commercial structure, risks and performance monitoring) and therefore these offer the best opportunity for savings. An ineffective contract lifecycle management may result in contract leakages (financial or non-financial) between 5% – 15% of contract value.

 

Understanding contract leakage and its root cause

Contract leakage can be defined as a gap (financial or non-financial) between the value captured or promised during the pre-award phase and the value delivered during or at the end of the contract. The value captured during the pre-award phase is often lost over time due to:

  • Weak monitoring of contractual commitments and risks
  • Lack of business case/value tracking and reporting
  • Ineffective contract change control or administration procedures
  • Scope creep and delivery and quality failures
  • Bad planning and demand management
  • Ill-informed buying
  • Miscommunication and rigidity in managing the relationship

CXOs, business heads and procurement specialists should always look for key indicators that suggest the possibility of value leakages in contracts. The following are some indicators that have been seen in contracts as red flags:

  • Lack of ownership or accountability over fulfilment of the contract or business case
  • Ad-hoc or no tracking and reporting of contract performance
  • Multiple variations or change orders
  • Lack of understanding of commercial structure and scope of contract
  • Contract compliances and risks being managed in silos or in an inconsistent manner
  • Contract costs and schedule overruns
  • Unsatisfactory stakeholders despite all performance indicators being met
  • Long pending open issues and disputes

Consider an example: Management of a Fortune 500 company was facing difficulties with the operational performance of their large business process outsourcing contract – the internal stakeholders were unhappy and at the same time the cost of delivering those services had increased through multiple change orders/ amendments. They had lack of visibility on the fulfillment of contractual commitments and lacked the confidence of achieving the business case for outsourcing those services to a third party.

Management decided to conduct an independent study for assessing the current state of the contract. We evaluated the organization’s current contract and developed a review program that covers all aspects of the relationship – contract administration, performance, financial, compliance & risk and governance.  A detailed study was conducted of the contract structure, terms and conditions, existing processes responsible for monitoring performance & compliance to contractual commitments.

The review identified instances of leakages across the lifecycle of the contract – ambiguous critical contract clauses , impact and reasons for change orders/ amendments  not adequately reviewed before execution, service levels not properly baselined and monitored, financial commitments (investments, discounts/ rebates) and critical conditions of the contracts  not being fulfilled by the vendor, invoices not adequately reviewed before processing, and penalties/ service credits not computed and adjusted.

The outcome of this study helped the management to identify control gaps in the contract management across people, process and technology and direct & tangible cost savings/ renegotiation opportunities. Together with the management, we strengthened the existing contract management processes, and built & implemented a robust/ consistent contract governance framework.

For organizations, there is no better way to assess the quality of the current state of contract management processes and systems than through an objective and independent study. This study can help organizations identify opportunities to achieve savings, recover costs and enhance value from their existing contracts (in addition to overall improvements to the contract management function across people, process, and technology).

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Will Asset Protection Trusts Protect Assets From Medicaid Agencies?

25. September 2018 11:40 by Selina Stewart in

There are several types of trusts that are useful asset protection tools.  Asset protection trusts include irrevocable trusts with spendthrift provisions, offshore trusts, and domestic asset protection trusts available in some states (other than Florida).   I have been asked from time to time whether an asset protection trust will protect assets from being considered in an application for Medicaid eligibility.  The question is whether one can remove their assets from Medicaid’s asset ceiling (about $2,000) by transferring their assets to a trust that does protect assets from potential judgment creditors.

Medicaid eligibility will count all assets held in a trust in which the Medicaid applicant has, or could have any beneficial interest. The definition is very broad and encompasses contingent future interests or reversion interest.  If the Medicaid agency can image the applicant getting some benefit, any amount of benefit, under any circumstances all assets in the trust will be considered to belong to the Medicaid applicant. Spendthrift trust provisions that effectively protect the beneficiary’s trust interest from civil creditors do not shield a trust from Medicaid analysis.

There are some trusts that a Medicaid applicant can create to protect his income from being taken to pay for his care in a skilled nursing home while he is receiving Medicaid benefits. These trusts will permit the applicant to fund the trust with any income over Medicaid’s income ceilings and use the trust income for the applicant’s benefit while he is getting Medicaid benefits. Any income or assets in trust at the time of the applicant’s death will be taken by the Medicaid agency to reimburse the state for the cost of care.

The provisions of these Medicaid Trusts (also called “Miller Trusts”) are substantially unlike the provisions of trusts designed for asset protection. Using any type of asset protection trust form to protect assets from Medicaid agencies may deprive the applicant of money used to maintain a comfortable standard of living in a nursing home.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

How an Experienced Tax Professional Can Help Reduce Your Debt

3. September 2018 17:27 by Junita Jackson in

Oftentimes, we think we know what’s best for us when it comes to handling our own finances. The truth of the matter is everyone could use a little help, especially when tax season rolls around.

Many people who are in debt might not see how a tax professional can help them. After all, a tax professional deals in all things that are related to taxes, right? Well, that actually depends on what kind of tax professional you hire.

The Service You Might Be Used To

There are many storefront tax services that specialize in the “quick and dirty” annual tax filing. Nothing more. Nothing less. If what they’ve filed for you renders an outcome that’s other than a refund, then you are essentially on your own to work out some type of payment arrangement.

The Type of Service You Should Get Used To

The professionals at Success Tax Relief are invested in our clients. We do what we can to help our clients take care of their annual filing and see to it that they receive their refund as quick as possible. If for some reason, they end up owing the Internal Revenue Service (IRS), then we will also assist them with the means to making the payment. Oftentimes, the amount owed can be way more than taxpayers can afford. In cases like this, we communicate with the IRS on our client’s behalf to arrange an affordable monthly installment plan.

It can be said that other tax professionals do the exact same thing, but what sets Success Tax Relief apart from others is that we provide debt relief counseling services. We understand that when it comes to annual filings, sometimes you get a refund and sometimes you owe. It’s typically the owing part that can often get out of hand.

Managing Your IRS Payments

If you’re late with your filing or payments to the IRS, interests and penalty fees accrue, and if you’re already having issues keeping up with the payments, tacking on more money onto the existing debt can weigh you down. Because the consequences of a neglected tax payment are dire, this will certainly be the first debt that you want to pay. The problem is, other debts often get neglected because there’s only so much money to go around.

This is Where MaxFinancialss Tax Relief Can Help

The professionals at MaxFinancials Tax Relief have over three decades of experience helping taxpayers like you stretch the dollar so that you’re taking care of all of your debt. We understand that many people who find themselves in debt are having problems managing it. This is usually the underlying problem and we have a service to specifically address just this.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Why are Insurance Audits Important?

26. July 2018 11:28 by Megan Kunis in

An insurance audit is when an insurance company checks on the payroll or revenues of a customer or policyholder, to ensure that the policy reflects accurate rating information. Audits are common with all Worker's Compensation policies, many general liability policies, as well as some marine policies and other kinds of insurance.

Here's why audits are important: insurance policies are rated based on many different metrics, many of which we just do not know at the beginning of a policy term. For example, if a rating metric for a development is the number of acres in the development, that number won't change.  If the grading metric is gross revenues or gross payrolls, we don't know the true revenue or payroll until after the policy is over. The audit helps the insurance company to rate insurance policies most accurately.

Imagine you have a business that typically generates $1 million in revenues.  If you tell your broker that your business does only a half million dollars in revenues you may get a one year break in your insurance costs. The audit, however, is the mechanism insurance companies use to keep you honest.

The rating metric that drives Worker's Compensation costs is payroll. This makes sense: the more employees working at a place, the higher the payroll; this ties to the greater the exposure for somebody to file a claim.

Underestimating Payroll or Gross Revenues

Underestimating payroll or revenues for an insurance program carries some risks. Suppose a business does $1 million in sales and the general liability is based on that rating metric. To save money the business owner tells the insurance company their sales are only $500,000. Let's say the insurance costs $5,000 under these assumptions; you'd think the business saved $5,000. But when the audit uncovers the fact that the business does $1 million in sales, last year's policy cost is adjusted retroactively by $5,000 to get up to $10,000 in this example. (The additional $5,000 is due right away because it's for last year's policy.) Further, the insurance company has seen this tactic once or twice before.  In the interest of collecting a proper amount of premium for the new year, the insurance company will also update the estimated sales for that policy year to $1 million resulting in an additional $5,000 charge. This is the double whammy scenario: the insurance company collects the retroactive premium, as well as adjusts the current policy to reflect the reality: in this case resulting in a total $10,000 additional charge on what was budgeted as a $5,000 insurance cost.  This isn't good for cash flow or for relationships between risk partners. Underwriters don’t have a great sense of humor when it comes to mis-reported rating metrics.

We counsel our customers to be as accurate as possible or slightly underestimate projections so that audit adjustment is minimized, and premiums are paid as revenues and payrolls are accounted for.

A new trend in workers compensation is rendering these audits nearly obsolete. Worker's Compensation charged through a payroll service company allows Worker's Compensation expenses to tie almost exactly 2 labor expenses.

The Good that Comes from Audits

Not all is bad about audits. When sales come in below true expectations, most policies provide for return premiums under these circumstances. Some surplus and excess policies do not make such allowances, however, so it is important to discuss projected revenues and payroll with your professional agent or broker.

The audit exercise is typically a simple process of providing evidence of sales (income statement or tax reports) or payroll (941s and similar tax forms). However, we know it isn’t something anybody wakes up in the morning looking forward to doing. Thus, occasionsionally businesses don't get around to completing audits for their insurance company partners right away. The standard recourse is effective, but a nuisance: when an audit is not completed they generate an "assumed audit". Here the insurance company simply assumes that your payroll or revenues increased by 50% or more, generating a huge bill for the retroactive policy as well as a huge bill for the new policy. When an audit is not completed in a timely fashion the insurance companies leverage is often this giant bill. This is when the accounts payable folks get over to the bookkeeper to get that audit done. We work with our customers on expediting such events, but encourage prompt completion of any audit to avoid such unpleasantries.

In the contracting environment where a general contractor engages several types of subcontractors, the auditor will charge for costs of uninsured sub contractors much differently from insured subcontractors. When an uninsured contractor causes a loss, the general contractor's insurance may be responsible for covering a loss, therefore the attendant charge will be included for his policy.  Certificates of insurance properly organize and document insurance of subcontractors to reduce the effects of an audit on the general contractor's insurance program. See our separate blog on certificates of insurance

Be Prepared

Don't let an audit surprise you or catch you off guard. Here, we try to advise you in a way that results in the best possible insurance program while protecting your cash flow and budget. Don't hesitate to call or contact us if we can assist with achieving these common business objectives.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

The most common mistakes when managing personal finances

18. July 2018 11:30 by Megan Kunis in

The ability to manage money competently is especially valuable quality in the conditions of financial crisis, when the purchasing power of the population is shrinking, inflation is rising, and currency exchange rates are completely unpredictable. Below are the common mistakes related to money affairs along with financial planning advice to help manage your own finances properly.

The budget is the most basic thing in financial planning. It is therefore especially important to be careful when compiling the budget. To start you have to draw up your own budget for the next month and only after it you may make a yearly budget.

As the basis takes your monthly income, subtract from it such regular expenses as the cost of housing, transportation, and then select 20-30% on savings or mortgage loan payment.

The rest can be spent on living: restaurants, entertainment, etc. If you are afraid of spending too much, limit yourself in weekly expenses by having a certain amount of ready cash.

"When people borrow, they think that they should return it as soon as possible," said Sofia Bera, a certified financial planner and founder of Gen Y Planning company. And at its repayment spend all that earn. But it's not quite rationally ".

If you don't have money on a rainy day, in case of an emergency (e.g. emergency of car repairs) you have to pay by credit card or get into new debts. Keep on account of at least $1000 in case of unexpected expenses. And gradually increase the "airbag" to an amount equal to your income for up to three-six months.

"Usually when people plan to invest, they only think about profit and they don't think that loss's possible", says Harold Evensky, the President of the financial management company Evensky & Katz. He said that sometimes people do not do basic mathematical calculations.

For example, forgetting that if in one year they lost 50%, and the following year they received 50% of the profits, they did not return to the starting point and lost 25% savings. Therefore, think about the consequences. Get ready to any options. And of course, it would be wiser to invest in several different investment objects.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

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.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

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.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

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.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

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
Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

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.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis