New Year Resolutions:

As the year comes to an end and the New Year begins I expect you, like most industries, will hope to see a continuation of the improving economic conditions. While there have been encouraging signs over recent months (although we feel for exporters with the current exchange rate) it remains critically important that as business leaders we all continue to focus on having our people operating effectively and efficiently.

In recent times we have been working with a number of smart companies who are looking to source people with specific skills in order to maximise opportunities in their industry sector. These companies also recognised that it is critical to have good HR practices internally, now, that will enable them to improve productivity and minimize risk in their operations.

Listed below are 4 things to think about;
- Recruitment. As the shackles come off employment, be conscious your people will become the target of your competitors.  Ensure you have a strategy to ‘retain and gain’. If you intend to ‘gain’ (ie. take on people) do it right. No-one can afford to get it wrong as the cost for all parties is significant. 

 
- Performance Management. Effective systems in place to manage employee performance is essential. We have worked with some great companies who have seen significant improvements (financially) in their business through developing and deploying effective performance management systems….then using them!

 
- Get Feedback. People within companies need a vehicle to provide feedback about the business, management, systems, process…and other things important to your operation. Establish a vehicle for that feedback to be provided using either a Climate Survey or 360 Degree process (for management). 

 
- ………we have left point 4 out. What gap do you need to close in your business that will improve productivity of your people, minimize risk, reduce cost or improve employee engagement. Often the thought of managing and closing that gap seems daunting but in reality can easily be achieved and deliver significant results.

KEEPING YOUR BANK MANAGER HAPPY

David Kitson, Director, Taurus Group Ltd

 While one of the key business performance measures is the performance and productivity of your staff, the financial performance of your business also needs to be monitored and reviewed regularly. Not only are your shareholders interested in this information,  but third parties may also have a financial interest.  Essentially, we are talking about your bank.

In this current economic environment, banks and finance companies (those who are left) are constantly reviewing their exposures. Initially their review is based on industry analysis, and then they look at your performance compared with your budget, and the industry norm.  They will be particularly targeting borrowers who are struggling to meet their loan covenants and this may be as simple as:

• furnishing financial statements on a regular basis, e.g. at least quarterly, and certainly annually
• providing written commentary on the business activities for the period under review
• providing the annual forecasts within the specified timeframes.  It is important that these forecasts are achievable as they form the basis for the lenders KPI’s.

 The most likely financial covenants that the lenders will place on a business are:

• interest cover – how many times interest paid on loans and overdraft is covered by EBIT (earnings before interest and tax)
• equity ratio – the ratio of equity (share capital, retained earnings, reserves and shareholders current accounts) to total tangible assets
• variances of Sales, Gross Profit and EBIT compared with budget

 Where any of the financial covenants are not met, the lender will flag a breach of covenant and seek explanations as to the cause and what steps will be taken to remedy them.  The bank also calculates “trends” if a number of years’ results are held. A variance could be a timing issue e.g seasonal trading such as a resort hotel, but this does need to be taken into account when setting and agreeing the covenants.

The review of the performance of your business against the lender’s own measures is to ensure that their investment in you is not at risk, which could give them reason to increase rates and fees or worse still, terminate their facilities.

Taurus Group’s bank advisory division is led by  David Kitson, a director of Taurus Group, who has over 25 years experience in the banking and finance sector, as well as being a Chartered Accountant  By wearing his lender’s hat he can assist you in making the bank / client relationship a lot smoother by:

• reviewing all specific performance ratios,
• discussing the covenants from a practical point of view,
• reviewing your Letters of Offer to ensure that the rates offered are competitive,
• ensuring that the covenants set by the lenders are achievable,

 Many borrowers do not understand their covenants, let alone be aware of their ability to “negotiate” them with their bank at the time of review.

 If your bank manager is happy, you will (generally) be happy.  Give David a call on 03 353 2634 if you would like some assistance on working with you and your banker.

Much research has indicated that a vast numbers of employees leave their Manager not the organisation.

So, what is the cost of a ‘Leaders Learning?’

In a human resources context, turnover or labor turnover is the rate at which an employer gains and loses employees. Simple ways to describe it are “how long employees tend to stay” or “the rate of traffic through the revolving door.” Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover can be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.

Employees are important in any running of a business, without them the business would be unsuccessful. However, more and more employers today are finding employees remain for approximately 23 to 24 months. Statistics show it costs a company on an average of $25,000 (Vary by industry and vocation) per employee, including separation costs, paperwork, vacancy costs, including overtime or temporary employees and replacement costs including advertisement, interview time, relocation, training and decreased productivity when colleagues depart. This cost does not however include the possible loss of business as a result of losing key employees. Providing a stimulating workplace environment in which fosters happy, motivated and empowered individuals can lower employee turnover and absentee rates. Promoting a work environment that fosters personal and professional growth promotes harmony and encouragement on all levels, so the effects are felt company wide.

However, all these cannot be achieved without the right leadership in place, undertaking the right activities at the right time and place. Leadership capability In New Zealand has been bandied about for years and the common response to improve leadership capability is to send people on a 2-day course with the local training organization. Post that, very little happens except more people continue to leave. So we all need to take heed and take action.

Companies in New Zealand need to stop:

• Promoting people into leadership roles due to their tenure within the business.
• Promoting people into leadership roles without assessing their ability to undertake this function.
• Promoting people into leadership roles without providing the right support and (effective) training.
• Start performance managing your leaders – manage up or manage out!

People need to stop accepting Leadership roles unless:

• They are prepared to accept the responsibilities and accountabilities that come with a leadership / management role.
• Get off their chuff and do something about improving their leadership ability – it’s not all the company’s responsibility.
• Accept constructive feedback and use it to improve overall
• Understand that leadership style can either be ‘fixed’ or ‘fluid’. One works short-term and the other sets you up for a great leadership career.

If hiring externally or promoting internally, the investment you are making is significant. Involve experts in either the entire process or parts thereof. There is a cost to all parties, both financial and mental!