Kakapo Chat 002: Philip Morrison. Franchise Accountants
This month we catch up with Philip Morrison, a business owner who also happens to be one of NZ's leading small/medium business accountants. Philip shares his views on 2019, the evolution of small business accountants and a couple of tips for business owners who are looking to exit within the next 6-24 months.
2019 is off to a strong start, do you see any sectors in particular that are performing better than others?
As always some sectors are performing stronger than others. The hospitality sector is strong, construction can be a boom and bust sector so if the market shifts down a little some business failures may follow, Retail is soft, chemists have had some disruptions with large discount players coming into the market from Australia. There is still a lot of demand for child care centres but there has been some softening on sale prices achieved for these business.
The likes of Xero and similar products have been a game changer for small business owners, have these products changed the role of the typical small business accountant?
Xero empowers business owners to get real time visibility of the performance of the business. Xero tech allows business automation of processing transactions with less data entry. This means the role of accountants are moving away from low value-add transactional processing and trending towards higher value-add services, advising and interpreting the numbers. What are the numbers telling me and how should I respond?
You've worked with thousands of successful business owners but unfortunately not everyone succeeds. What are the key character traits you see in successful business owners?
Surveys show the main reasons for business failure are being under capitalised so either going in with not enough money behind them to operate a business or simply too much debt. The other is allowing for tax and when it falls due – the cupboard is bare. Other observations are low financial literacy where they're not good with numbers and don’t invest in taking timely advice until it's too late to recover. A positive attitude always helps along with a supportive family network, businesses have pressures and a supportive family network can help with emotional resilience needed.
NZ is the most franchised country in the world. How does a potential purchaser tell the difference between good and bad franchise systems?
There is no short answer to this one. Not all franchises are created equal so do your homework before investing in one. Surround yourself with experienced advisors before investing and check in with existing franchisees to ask them how it's working for them.
What advice would you give to two or more people who are looking to partner up and purchase a business together?
Protect each other with a business type prenuptial agreement, typically called a shareholders agreement. It provides a framework that binds each party and covers off some important points such as how major decisions are made, the rules if you chose to exit the business, the rules around who you sell your shares to and how your shares are valued.
In your opinion, how often should a business owner be in touch with their accountant to review business performance?
Typically once a year is not enough as it's often more a history lesson of what happened 12 months ago. It really depends on the type of business and what is happening in that business that dictates how frequently you meet. For small businesses no less than once every 6 months, preferably quarterly business reviews and for medium sized businesses, monthly.
In between the unconditional and settlement date, what are three things a Purchaser can do to help set themselves up for success?
Prepare a business plan, budget (cashflow), find a business advisor who you can be accountable to, take a holiday before you start.
How can a good accountant can add value to a business owner?
Interview your accountant before engaging them. Ask them what services they provide, who they work with and how they can help you. Don’t shop accountants on price as you will often get what you pay for. A good accountant has more tools and experience to assist business owners. Remember that good advice pays, not costs.
If I was a business owner who was looking to exit within 6-24 months, what should I be doing between now and sale time to maximise my sale price?
Seek advice from a business broker and their accountant. Keep your books tidy, get records up to date, get advice on how to optimise the business. Preferably have 2 years of accounts which shows the business performance – ideally growing, or stable earnings – not declining.
Thanks a lot for your time Philip, how can our readers get in touch with you?
Call us on 0800 555 8020 or email firstname.lastname@example.org