Big policy changes a big deal for SME's
17 December 2009
Small to medium enterprises (SME) will need to be prepared for a new competitive landscape in the coming year which will turn previously profitable business models on their heads says a respected accounting and advisory firm.
Marc Peskett, partner of Melbourne based firm MPR Group, says some major policy initiatives will have a significant impact on businesses for 2010 but will also create new business opportunities and change margins for nimble and niche operators.
He cites five initiatives, the National Broadband Network (NBN); Emission Trading Scheme (ETS); monetary policy through interest rates; new national employment standards and a review of the tax system as the key drivers of change for the coming years.
"While many SME's are bullish about 2010 they will need to assess the impact these policies may have on their key value drivers of profit, growth, cash and risk if they are to be successful," Mr Peskett says.
"Depending on the industry you operate in and your competitive position these changes will either present an opportunity or a threat.
"Either way it's time now for small businesses to plan for the year ahead and make themselves well informed and aware of these changes that will have a significant impact on their livelihoods."
Mr Peskett says the rollout of the NBN will dramatically change the way people do business and SME's need to develop an online strategy now, with a view to owning their online space.
"If not already online, SME's should start planning to migrate their business online," Mr Peskett says.
"The key advantage that a small business has over a new online startup is customer relationships.
"Leverage off these and start to migrate the business to the net now so that when the new network kicks in you are already there and ready to go."
He says the opportunities for businesses with the NBN to include a lower cost way of doing business, expanded reach resulting in more consumers online, new markets and a reduction in cash cycles.
The threats businesses need to be aware of include new nimble competitors attacking niches with a more attractive offering at a lower price, more suppliers, price pressures, and eroding margins.
"The government has launched their Small Business Online program which will provide grants to service providers to help small businesses set up business online and become online savvy," Mr Peskett says.
While an ETS has not yet been introduced, Mr Peskett says SME's should be prepared now for some form of legislation that will have an impact on their business.
"Businesses need to start gaining an understanding of how the new regime is likely to either directly or indirectly affect them and consider the new financial and procedural impacts their business will have to manage," Mr Peskett says.
"Start to implement some of the simple and obvious practices that will reduce energy, water and waste generated now to be in a better position to address your own carbon footprint and help manage future price fluctuations.
"Many utility providers already have fact sheets and advice available around achieving these savings, but ultimately the message is less carbon, more costs, and more complexity."
Mr Peskett says if you operate in the alternative energy industry there will be an abundance of opportunities and a potential wave of clean and green subsidies and grants, however an ETS will also mean higher electricity costs, the dismantling of industries and businesses that service that industry and pressure from large companies actively seeking reductions across their entire supply chain.
"There will also be price competition from international competitors not affected by local price increases and
big business is likely to pass the cost down the supply chain to smaller operators in order to recoup costs," Mr Peskett says.
Mr Peskett says in regards to monitory policy the RBA seem to be taking a cautious and gradual approach to rate changes with the effects of the stimulus package wearing off, but spending remaining strong.
"While we expect rate increases to follow solidly throughout 2010 and the ensuing difficulties caused for businesses by upward monetary pressure, there are also positives," Mr Peskett says.
"Positive business performance off the back of continued strong spending and growth going into 2010 is one example, so businesses need to review and revise sales forecasts for 2010 and consider the working capital they'll need to meet expected demand.
"Borrowing by small business may become more prevalent in 2010 and the cost of borrowing may reduce as banks become less concerned about risk. This is a good time to review your current facilities and make sure you have the right ones that will continue to work for you in 2010 and beyond."
Mr Peskett says all SME's are in the people business, and new national employment standards will also have an effect on their businesses.
"Handling employment and team issues can sometimes feel like a full time job for a business owner but the introduction of new workplace relations laws provides an opportunity to review current employment practices and streamline methods for handling staff issues in a more efficient and mutually beneficial manner," Mr Peskett says.
"Engage in discussion with employees and boost morale and satisfaction through the process, implement sound processes to efficiently handle staff issues and prevent employer exposure, and look at initiatives such as flexible work arrangements that can improve productivity and ultimately business financial performance.
"However employers need to be careful about loss of staff to competitors with a reputation and track record of positive culture and employment conditions, as well as potential investigation, penalties and action brought by Fair Work Australia for failure to comply with the new laws."
Mr Peskett says the review of the tax system is probably one of the most important and far-reaching policy initiatives that will affect SME's over the coming year.
"The Henry Review is due to be handed down by the government at the end of this month or early January 2010 and it's expected the review will contain significant changes to the collection and payment of tax and will hopefully simplify the tax system and reduce the compliance burden on SME's," Mr Peskett says.
"It's been suggested that the tax calculations for small business may move to a cash basis, that is cash inflows equal outflows.
"While it's likely to result in changes to who pays tax and methods of payment, it's not expected to result in a reduction of tax rates, particularly given the large government deficit we're carrying as a result of the global financial crisis.
"SME's should expect change, and be prepared to deal with transitional issues and the initial complexity that comes with change."
Marc Peskett has over 25 years of experience in high-level business planning, taxation consulting and general accounting.
Marc Peskett can be contacted for comment on 03 9869 5900.