Does the Pandemic mean we should be changing Business or Employment Direction?
As a practitioner in a Public Accounting firm for over 45 years, specialising in taxation and business management, due to the impact of the pandemic, I am having clients seeking advice in relation to changing their business or employment career direction.
The devastation to financial positions and people’s well-being caused by the pandemic is making some think or re-think their future business or employment career directions. Given most of us have spent a consideration amount of time away from our usual businesses or employment locations with resultant lengthy periods at home with our family, especially our life partners, it has allowed us to ponder and discuss what alternate opportunities might be available to us if our business folds or we lose our employment. This is of particular concern for those of us who are into our 55’s and 60’s where 2020/2021 Federal Budget employment incentives do not favour these age groups.
Only last week I had a client who comes from a migrant background, does not have strong English-speaking skills, lacks writing capabilities and is nearing his 50th birthday. He has been employed in a process worker/driver capacity for all his working life in Australia. Due to his employer’s business ceasing during the pandemic with it not likely to re-open, my client has been contemplating becoming a sole trader and acquiring a van to supply the customers of his previous employer. This all sounds positive and will he probably have no other option than to ‘give it a try’.
The advice that I gave my client was as follows:
- Get the ‘foundation stones right first’. When making deliveries for his previous employer, he had developed great relationships with those customers and was extremely well liked by them. As a business owner, he must make every effort to further develop his rapport with those prospective customers to his new business. He needs to devote time to engage in face-to-face relationship development by visiting those customers on a regular basis. He must ensure he can source his product at a competitive price and ensure the quality of that product is not inferior to that of his previous employer. He is likely only to get one chance in converting those customers whom he approaches for sales. He therefore must be professional in production of a product list and adopt pricing to attract their custom. He must ensure he creates a reasonable profit margin on sales as failing to do so will likely lead to future customer discontent when percentage price increases are substantial. Providing the prospective customers with sample products would enhance his prospects of ‘converting them’ as longer-term customers. Being in the food supply industry, if he can provide timely delivery, especially at short notice, then he has a number of factors in his favour in attracting customers.
- He must establish the new business with as little initial capital or borrowings as possible so that if it fails, he will not ‘lose the house’ arising from unpaid business debts. This is not going to be easy because he will require a reliable refrigerated delivery vehicle in ensuring his deliveries are made according to his customers’ expectations.
- He must be orderly in scheduling and supplying his product to designated areas on designated days so that his customers know when to order and when delivery will be available. The organisation attached to his delivery pattern must account for the heavy opportunity cost which may occur if he makes special deliveries to special customers at short notice. What happens if he acquires a low-cost delivery van which is unreliable with the van spending a considerable amount of time off the road therefore leading to failed deliveries and possible spoilage of product?
- If he is to obtain favourable product purchase pricing then he must consider whether he buys in bulk and refrigerates the product but that brings with it the requirement for expensive and considerable space occupation of refrigeration equipment. Alternatively, he may elect to acquire second hand refrigerated storage equipment but in so doing, he must ensure he has reliable and timely service/maintenance agreements with repair and maintenance organisations being available at short notice. He could not afford to suffer product spoilage due to defective product refrigeration equipment.
- His area of usable space to conduct his business product warehousing needs to be kept to a minimum if he is to rent such a facility. He should avoid entering a long-term leasing arrangement in the event of early business failure. He is lucky that his parents will allow him to use their investment property at a reasonable rental rate and they do not require the signing of a lease agreement. That could pose a problem if his parents attract alternative tenants who are prepared to pay more than their son’s business.
- His deficiencies in English writing and speaking skills present an obstacle for him in negotiating, establishing and contracting agreements therefore he may become heavily reliant on the services of professional advisers which can attract substantial cost.
- An essential element of conducting a successful business is to engage the services of good administrative support personnel. His wife is an extremely competent person who would have to become responsible issuing invoices, debt collection, banking and accounting/bookkeeping services. These are tasks on which she will have to undertake training.
- Other considerations include determining the most appropriate trading entity, how much time can he devote to the business and preserve his health in avoiding the engagement of employees, whether the food product on offer by him will remain attractive to the final consumer as consumer preferences may change during the period of pandemic, etc.
I do not envy the decisions that my client and his wife will have to make in the near future but this is just another element of the immense stress and strain this virus is creating the world over. My aim is to provide discounted professional support to my client and his wife and encourage him to consider all facets of this business opportunity with the knowledge of the high percentage of first year business failures.
JOHN WRIGHT, Principal
HERMAN & BERRY
PH: 9457 1666 FAX 9457 4266
EMAIL john@hermanandberry.com.au
www.hermanandberry.com.au