How quickly the year has passed! It's hard to believe it is already December again.
This month our newsletter provides a first-hand view of the global financial crisis direct from the eye of the storm - the USA. During his recent visit to Australia , I spoke to our VP Sales and Marketing - US Region, Darren Bradley about the crisis. Darren is an Australian Chartered Accountant who emigrated to San Francisco in 1998. He has close contact with many businesses and fund managers in California and his observances make very interesting reading.
We also describe the capabilities of two CFO Network™ Members. Each has specific talents that could help your business during these challenging economic times. The number of members of our CFO Network™ is rapidly increasing (we now have over 200 members Australia-wide), so if you want to meet any of our members, or need experienced and affordable accountants, financial controllers and CFO's to help your business, or just want to chat about your business requirements, please call us on 1300 79 1946.
Our FREE report, "How To Build Your 21st Century Management Team to Ensure Your Business Survives to the Next Generation", was launched on 1 December. The report has already received excellent reviews as a great recession buffer for business . If you haven't read the report yet, and want to know what it contains, just visit www.21stcenturymanagement.com.au. And tell your friends; this could be a very valuable tool for them as well.
And finally, thanks to you; our clients, supporters, staff members and, of course, our CFO Network™ members for your support throughout the year. We wish you all the best for the Festive Season and a happy and prosperous 2009.
Darren Bradley CA is a member of the Institute of Chartered Accountants in Australia. In 1998 he emigrated to San Francisco where he worked for an accounting public practice, funds manager and various other businesses. He provides a unique Aussie expatriate perspective on the global financial crisis. As a member of our CFO Network™ , Darren provides in-house accounting and CFO services to Australian companies in the USA, and he also represents Part Time Professionals to US-based funds managers with investment interests in Australia.
PTP: From your perspective as an accountant, have you seen any major changes within your business clients since the financial crisis started 12 months ago?
DB: Yes. There has been a dramatic decrease in the amount of credit available to business. More stringent conditions have been set for borrowers and many lenders (including 33 in the San Francisco home-loan market) have gone out of business. This has forced companies to issue shares as a source of funds but, with the general market uncertainty, shares are difficult to price and investors are difficult to find. Overall there is serious lack of liquidity over here. I have also started to see companies experiencing operating losses for the first time, which has changed the management focus from fund raising to cost control.
PTP: What sort of stringent conditions are now being imposed by lenders?
DB: Firstly, the margins charged by banks on interest rates have increased. This means that although the Federal government has reduced its official interest rate, the real interest cost to borrowers is actually going up. In addition, loan to value ratios are decreasing; more personal guarantees are being required; and if a business wants a loan it may have to transfer all its business to that lending institution.
PTP: What is the current mood of business in San Francisco?
DB: San Francisco is a unique city populated by many small entrepreneurial businesses. Currently San Francisco’s unemployment rate is 6% compared to the Californian unemployment rate of 8.6%. The mood in the city is reasonably upbeat, however there have been some worried and confused faces in the local popular business of hedge fund management. Outside of the hedge funds, people are just getting on with business.
PTP: In what ways have you seen companies react to the crisis?
DB: Companies are taking a closer look at their cost structures and spending the more time revising their business plans for 2009. In the case of funding, I have seen an increase in the use of private funds as opposed to banks or other traditional lending institutions.
PTP: What are property prices doing in San Francisco?
DB: Residential prices have remained static in the City, but in the Greater Bay Area there has been a drop in prices of about 20 to 25%. Commercial property is a ‘mixed bag’ with most landlords trying to hang on to avoid having to sell into this depressed market . It is expected that prices for commercial properties will reduce further over the next 12 months as loan maturity dates force more landlords to sell.
PTP: Are there any areas where business is proceeding as usual?
DB: There are pockets of business that are surviving the storm. Examples of businesses that I have worked with that have not suffered any major impact are: low to medium priced restaurants; cheaper grocery chains; turn-around/workout consulting practices; accounting firms; law practices; and second hand car yards.
PTP: Second hand car yards?
DB: People can't get new car finance, so they are buying second hand cars that they can afford without borrowing anything. By the way, petrol is now $1.19/gallon. This is less than half what it was a year ago.
PTP: Are some businesses doing very well?
DB: I can’t think of any that are doing really well at the moment. I know there are performers – ‘hard money’ (high interest/risk) lenders, brokerage house specialising in bonds, and specialist consulting practices.
PTP: So, how are businesses preparing for next year?
DB: Businesses are taking a very hard look at their overheads. They are eliminating and/or reducing expenses and transferring fixed expenditure to part-time/variable expenditure where possible. Any major capital expenditure that is not urgent is being postponed.
PTP: So, when do you predict we will reach the bottom?
DB: Unfortunately there are too many moving parts and no current signs to predict the ‘bottom’. Many economists are predicting a tough first half of 2009 with a possible turnaround mid to late in the year.
PTP: Did you or anyone you know see this coming? If so, what were the warning signs?
DB: Some experts had written articles about their concerns of the high levels of debt and the lax underwriting procedures, but I don’t know if any had predicted it reaching such a global scale.
PTP: So what is everyone wanting Santa to bring for Christmas in San Francisco?
DB: The new iPhone, definitely. Everyone wants one of those.
there are particular skills that can really help businesses wanting to survive and thrive. This month we highlight two CFO Network™ Members with skills and experience that may be able to help you in your business:
Michael (Sydney): Having worked in the finance industry for over 30 years, I have assisted and advised many companies to obtain loans and raise share capital. I also know all the key drivers that financiers look for when providing credit to their clients.
Companies need to have robust business plans that consider all the contingencies. Remember that financiers don't simply review cash-flow projections; they also review the quality of the balance sheet, any assets being acquired, and the risk controls in place to ensure that cash-flows are protected.
It is essential that companies are extremely well prepared before they raise capital or seek loans. It is a very tough and competitive market out there at the moment.
David (Melbourne): During the global credit crunch it is critical that organisations have core strategies in place in relation to:
1) control and management of all commercial, business and fiduciary risks;
2) fully costing products, product margins and profitability under a variety of scenarios; and
3) customised cost control policies and principles that are right for the business and do not hinder its growth.
I specialise in customising cost and risk management solutions. My clients have demonstrated to their lenders that they are low-risk, profitable going concerns by providing sufficient comfort that they have full control over a profitable business; hence they will survive this downturn.
The ability to make strategic decisions based on disciplined financial processes and accurate financial data is the key to sustained profitability.
If you would like an obligation-free introduction to either Michael or David (or to any of our 200 CFO Network™ members) please give us a call on 1300 79 1946.
About Part Time Professionals
Part Time Professionals™ is wholly owned and operated in Australia. Our principals together have over 40 years experience in public accounting and as CFO's and Directors in multiple companies - both listed and unlisted. They are members of the Institute of Chartered Accountants in Australia, CPA Australia, the National Tax Agents Association, the Australian Institute of Company Directors, the Financial Executives Institute and the National Institute of Accountants.
Our aim is to help companies source the most experienced CFO, executive and corporate accounting talent, in the most cost-effective way!
We are constantly updating our website, so take a look at www.ptprofessionals.com.au for more information or call us on 1300 79 1946 to discuss your needs.
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