Business Section
This area of the site has all the Business knowledge and research
Intended to provide a concise repository of information, where insights are cross linked,
to paint a wider picture about what is going on out there.
INSIGHT –
95% of Businesses that fail, had Cash Flow Issues, or “Poor Management” – ABS
..60% of small business fail in Australia within three years of starting operations. Of those businesses that fail, 49% had cash flow issues or high cash use, and 46% suffered from poor strategic management.
Simply put, people did not test their assumptions, they had a strategic vision that did not align to the reality on what is occurring in the marketplace.
Common issues when people first start a business, they over capitalize – e.g. need a new computer, need a new this, a new that. When in reality their existing equipment works perfectly fine, if you have a computer that’s 4 years old, it can run email and a web browser, and with Software as a service / cloud, why do you need a new computer again?
Other issues are, budgets are not realistic, as they don’t have a basic understanding of capital structures or how cash flow works.
Some people will over order inventory because their sales estimates are out. Some didn’t release a minimum viable product (MVP) to test the market, so they have 10 month’s worth of stock, which is sunk capital until they sell it. Which hurts their opportunities to change direction of their business or release new products that might be able to sell better.
Ideally the individual should have as less stock on hand as possible, to meet the demands of your customers in terms of delivery windows and expectations. This improves your cash conversion cycle.
The Economy Explained
It’s important to know how everything all fits together, everyone’s individual businesses are all linked together which eventually makes a circle.
The cafe relies on the baker, the baker relies on the farmer, the farmer relies on demand from the cafe and bakery, and that demand is based on how much money people have in their pockets and how good the cafe and bakers food is compared to their competition.
We go through what the Economy actually is, the terminology and how everything all works and fits together
Indended for people to improve their general knowledge so they can gain an understanding on how their small business fits in with the bigger picture, so the individual can make better informed decisions for their business
INSIGHT –
If management standards rose to that in the mining sector, labor productivity would rise by 6%
Ms Meghan Quinn, Deputy Secretary at Treasury in charge of the Macroeconomic Group stated that:
Governments, business and the community must focus on delivering difficult productivity-enhancing structural reforms to help boost wages and lift living standards to complement the Reserve Bank of Australia’s monetary policy at the OECD’s productivity forum, in Sydney during July 2019
Key Points from Ms Quinn
“Australian firms have fallen behind firms at the global productivity frontier over recent years”
“Treasury analysis suggests that labour productivity in the non-mining sector could increase by 6 per cent if managerial practices rose to those in the mining sector,”
She said firms may be investing in emerging technologies such as artificial intelligence, cloud computing and blockchain, but could do better at using the new technologies more effectively.
“A lot of companies have iPads for their employees but have they re-engineered their production processes to get the full value of the iPad?”
Treasury’s Paper on this:
Key Points from the paper
- Papers from the United States suggests that lower job switching rates are associated with lower wage growth (Faberman and Justiniano 2015; Karahan et al 2017; Moscarini and Postel-Vinay 2017)
- Deutscher (2019) examines the effects of job switching on wages in Australia and finds that local labour markets that have higher job switching rates have higher wage growth. This result remains after controlling for demographic influences and a range of time-varying shocks, including the unemployment to employment transition rate
- An 1% decrease in the job switching rate, is approximately correlated with a 0.5% decline in wages growth.
- Two types of companies exist ‘leaders’ and ‘laggards’. Less productive firms pay people less money, and high productive firms pay more money, because they rely on technologies that require high skilled individuals (for example, Caselli 1999).
- Then after time, the laggards can’t keep up with the firms that are more efficient with their capital allocation (the productive firms) that are adopting technology, in order for the laggards to compete, they need to cut costs, and those costs are highly likely to be staff wages
- Australia is not alone, a number of papers have documented a growing gap between the productivity of leader and laggard firms, such as Andrews et al (2015, 2016) for a range of OECD countries, and Haldane (2018) for the United Kingdom
SSBA Insight Linking and Correlation