- Tuesday, 20 March 2012
There is usually an easy way and a hard way to learn something. The confusing part is that sometimes we take the easy way only to find it teaches us a hard lesson. Greece’s economy is an example of this. And vice versa, sometimes the hard or difficult way of doing something doesn’t teach us a thing. Take the botched Carbon Tax for example, where the lesson is still to be learnt.
When you see some operators in action, like this rock breaker on a demolition excavator (see above video), it highlights that sometimes what we might see as common sense doesn’t apply to everyone. This is probably proof of how we end up with ever increasing Red Tape paperwork. However I’m not sure that a JSA conducted by the operator and all the onlookers in the video would have actually made them realise the issues anyway, because nobody seems to be using any brain power to stop it happening. Either that, or YouTube infamy/stupidity has now caused de-humanisation of what can happen when people prefer to watch rather than do anything. Or maybe difficult tasks appear easy, so you get incompetent people trying to do things without the required skills and knowledge.
After several boom years, a majority of our population are working in industries doing it tough, the upside being that it has taught people to save and create a bit of a buffer. Many have also realised that our strong dollar has made it more affordable to go overseas and experience something new, something which apparently 7 million Australians did last year, a third of our population. Hopefully they learned how good we actually have it, being on average the richest people on the planet, and with comparatively very limited real poverty.
Unfortunately this financial re-education hasn’t extended as far into the business world, and even less deeply into the Governments of the world, where un-controlled wasteful spending continues unabated. Take the Air Australia crash as an example. 5 months ago they rebranded the airline, and have since taken $40M in pre-paid tickets, yet end up owing creditors almost $90M. Surely somewhere, someone looked at Cash flow? It shouldn’t take until the last day of trading to realise you only have $440,000 in the bank and all these obligations to provide flights and pay suppliers and staff? And having myself flown with them in June last year (on a full flight), surely any business let alone one this size should know its fixed and variable costs well enough to know if they aren’t charging enough? Yet the key players aren’t stupid, because they have considerable wealth in other companies. Perhaps it is because a lot of customers are so focussed on finding low cost suppliers that many people flocked to buy tickets. Air Australia might have thought they were in a rapid growth phase, something which was re-enforced by the many positive news articles about them and big parties over recent months highlighting the “successful growth” of a new airline. The wonders of repeating a message, after a while you end up believing your own BS. With air travel paid in advance, they incorrectly assumed because they had money in the bank that they were solvent, when in fact they should have kept tabs on the liabilities and debts that they needed to repay. This is called trading whilst insolvent, and rightly carries a jail term, which hopefully ASIC has the clout to pursuit, as it should be a no-brainer to prove they were spending other peoples’ money, which is theft.
The Earth Moving industry is a little different in that most of the time payments are received after the product or service has been provided. In that regard, it is a little easier to work out if your business is still solvent: all your debts are paid by the due date all of the time, and you have sufficient money in your bank account before you commit to further expenditure. If you are relying on your suppliers to finance your business, you are on the fine line towards “trading whilst insolvent” and need to be very well versed in Cash Flow Analysis. Some businesses work on the basis that if they are owed money by others, you can “afford” to owe creditors, but what happens if your debtors are late paying or don’t pay? Can you keep your business going, or does that stop you from doing further work, and hence stop your future income? Unfortunately the statistics show business failures in January were 10.9% up on the 5 year average, continuing the double digit trend of the last 3 years of more and more businesses being wound up. The forecast for 2012 is that business failures will increase further, with Construction and Tourism the biggest concerns, before an expected improvement in 2013. The message is to watch your cash flow very carefully, and focus on costs by ensuring you get value for money when you spend it. If you want to drive the success of your business, do smart things like using new replacement parts and re-conditioned components. This is usually a more cost effective way of repairing your machine. And maintain the machine before it breaks, the repairs will be less as will your down time.
Speaking of successes, we tallied up our Rock breaker sales, and realised that Qld Rock Breakers has now sold over 800 new rock breakers since its inception. We’re continuing to invest in our business, with even more stock on the shelves ready to meet your requirements, so if you haven’t already, give us a try!
As always, Onwards and Upwards!
State of the State
Managing finances really comes back to something as simple as Primary School mathematics; addition, subtraction, multiplication and division. It’s worth remembering when we do a quick analysis of the State of the State of Qld. In a resource stronghold state during the Mining Boom of the last 5 or so years, Qld has sold nearly all it’s saleable Assets (you know, the things that actually generate income), and incurred a further $85 Billion in debt. Billion rolls off the tongue a bit easier than putting that into context: Qld’s loans are more than NSW’s and Vic’s combined, and we have less than a Quarter of their tax income to support it. Any incoming Government will inherit having to pay $11 Million in Interest PER DAY, not including any repayments to pay off the loan. That annual interest is nearly $1,000 per year for every man, woman and child in the State. That’s before we even look at paying the State’s running costs.
How can this happen? Well, I guess if you failed basic maths, you also struggle to understand the cost implications of any decisions you make, however “smart” you think your ideas are. For starters, we have 1 million fewer people than Victoria, but 15,000 more public servants, and added 28,699 public servants in the last political term. The annual cost of running the public sector in Qld has increased from $33B to $47 Billion in just four years, or 42%, nearly three times inflation for the same time. Politics is about popularity, not competence. Unfortunately the People of the state can’t handle the truth, which is why our “leaders” prefer to not raise the topic of the Elephant in the room, because nobody dares explain the pain involved in fixing it.