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TheMoney Factor Is your compensation
package working?
FINDING THE RIGHT ANSWER STARTS HERE
Fall 2008 |
Credit CrunCh Obtaining financing when credit markets are tapped.
MPACT > Fall 2008 2
Daryl Ritchie, FCA CEO, Meyers Norris Penny
A w o r d F r o m o u r C E o
MnP’s new nationwide VisionThis past summer, mNP announced its new vision to become a national firm. we are pleased to tell you we have taken the first step toward realizing this new vision by entering the Toronto marketplace.
For many years, mNP has been defined as a western-Canadian firm. we started out as a single office in Brandon, manitoba in 1945. Throughout the years, we grew—one merger and one office at a time,—across manitoba, Saskatchewan, Alberta, British Columbia, and into northwestern ontario. Today, we have more than 75 offices across Canada and a number of clients who do business nationally and internationally.
But mNP isn’t a regional-based firm; it’s a client-based firm that does what is best for the people we serve. with technology, geographical distance is no longer a barrier to doing business. To best serve our clients,
we realized we needed to be connected to business networks across the country.
I encourage you to read our Perspectives article to learn more about our new vision. As a firm, we believe our merger with Horwath orenstein LLP is the beginning of great things. Armed with a highly motivated and skilled team of professionals and a clear plan of action, we will continue to enter new markets and expand services to provide our clients with the expertise and knowledge they need to meet their goals.
I’d like to extend a warm welcome to all our new readers. In this issue, you’ll find many excellent ideas to help you achieve success, with topics ranging from obtaining financing when credit markets are tight, to tips on attracting and retaining employees in today’s labour market.
mPACT is about helping you find the right answers. whether you have a comment or a story idea for our next issue, we want to hear from you. E-mail your suggestions to us at [email protected].
In this issueFeaTuresWood Visions crafts a new vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
When is a bonus not a bonus? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The money factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Credit crunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Change for the better . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Framework for owner-managed enterprises (FOMe) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Project prioritization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
regularsa word from our CeO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Published by:
meyers Norris Penny LLP
300, 622 5th Avenue Sw
Calgary, AB T2P 0m6
P: 1.877.500.0792
managing Editor
debra Beck
250.863.5968
Articles in this publication are
neither official statements of
position, nor should they be
considered technical advice for
individuals or organizations without
consulting an advisor.
mnp .ca
T he evolution of mNP into a national fi rm is good news for Canadian business owners. on
the heels of the former western-Canadian based fi rm’s announcement it planned to go national, it took its fi rst steps in realizing its new vision by merging with Toronto’s Horwath orenstein LLP. mNP is now operating in Canada’s largest fi nancial hub, providing clients with the muscle they need to compete nationally and internationally.
while mNP continues to look at future nationwide expansions, the 7th largest accounting and business advisory firm in Canada is also excited about providing access to an unparalleled depth and breadth of skills and knowledge to businesses operating in Toronto.
Establishing a national presence may not have been a part of the fi rm’s original strategic plan but mNP was quick to adapt when it became evident it was where the fi rm needed to go to better serve its clients.
“we have always had a strategic plan and our vision has continuously evolved over the years. many of our clients operate on a national and international level,” explains daryl ritchie, mNP’s Chief Executive offi cer. “They need
to have instant access to assistance from advisors and professionals who understand local conditions across Canada. As a fi rm we wanted to strengthen our national position and entering the Toronto market was the fi rst step in achieving that.”
mNP has built its reputation on the local knowledge of its professionals; since 1945, the fi rm has expanded to more than 75 locations across western Canada so that clients can obtain assistance from people who understand the markets in which they operate daily.
maintaining that local level of expertise was a primary factor in choosing to merge with a reputable fi rm. one of Toronto’s largest mid-market accounting fi rms, Horwath orenstein, is well established and its 80 staff members are uniquely positioned to effectively service mNP clients already operating in the Toronto market.
Paul dunnett, Horwath orenstein’s Chief Executive offi cer, is enthusiastic about the merger. “Joining the mNP team will enable our clients and the Toronto business community to access a vast range of accounting specialty and business advisory services, as well as the added depth and expertise of over 2,000 professionals,” he says.
Current clients of Horwath orenstein can now access expanded services in Corporate Finance, management Consulting, Enterprise risk, Business Valuations and Litigation Support, Human resource Consulting, Forensic Accounting, and Business Succession.
managing the change has been relatively easy for both firms thanks to some important commonalities. “Horwath orenstein and mNP have the same vision, values and commitment to providing quality service to our clients,” says ritchie.
Like mNP, Horwath orenstein has always focused on helping clients meet their business and personal goals. The fi rm has long offered advice, ideas and skills as well as fi nancial expertise, empowering its clients to make informed decisions regarding their business operations.
with the merger, mNP has added more professionals in the nation’s largest market, but the fi rm doesn’t plan to stop there. Future nationwide expansions will continue to allow mNP to further increase its ability to help clients grow their businesses and achieve their goals.
3
MNP Expandsinto Eastern Canada
Clients’ business needs major reason for move east .Toronto ★
A t Wood Visions, solving clients’ problems with custom-made solutions is an
everyday occurrence. The company, located in Medicine Hat, Alberta, designs and builds wood furniture and kitchen cabinets for discerning people looking for style, a perfect fit, and quality that will last.
“People come in and they have a pretty good idea of what they need,” says Dale Salmon, owner and manager. “We help them determine their exact requirements, then build the perfect piece to those specifi cations.”
Dale also spent a lot of time thinking about what his own company needed. The business, established in 1991 and incorporated in 1998, had grown organically, evolving from a small refinishing operation into a thriving furniture and cabinet manufacturing and refinishing company with eight full-time employees.
But while Dale was pleased with the success, little problems were multiplying. He felt burdened with the amount of work that fell on him and was becoming increasingly overwhelmed.
Over the years, Dale occasionally met up with Medicine Hat MNP chartered accountant Matthew May, for a round of golf. Dale used another fi rm for his accounting needs, but he and Matthew enjoyed talking business between holes. Naturally, Dale’s worries about his ability to handle the mounting issues at work surfaced often.
“Dale was struggling with empowering his employees,” recounts Matthew. “He was fi nding himself run into the ground, having to make every decision and being too heavily involved in every aspect of the business.”
No stranger to business management, Dale, who obtained a business degree prior to starting Wood Visions, knew he needed to make some changes. He had a good idea of the kinds of changes he wanted to make, including developing an incentive plan for his employees, something that isn’t easy with custom work. What the time-crunched businessman couldn’t do was actually implement the changes.
“I’ve gone to seminars and things like that,” says Dale. “I would say to myself ‘I’ve got to do this when I get home,’ then things happen and you just put it off.”
Matthew knew Dale’s experiences weren’t unique; many business owners go through growth and suddenly find themselves struggling to balance everything that has to be done in the business. Like Dale, they may know what they want to improve, but simply cannot devote the time or energy to making changes.
But Matthew, like many MNP general practitioners, had a some practical suggestions. “We take a forward-thinking approach to your business. We’re not just here to crunch numbers at the end of the year, tell you how you did, and disappear. Our goal is to help business owners deal with their business proactively so they can actually achieve their goals,” he explains.
Although Dale wasn’t a client, Matthew invited him to his office for a discussion about the issues at Wood Visions and how MNP might be able to help. He knew Dale didn’t just need someone to tell him what was wrong, or give him a few ideas on how to fix the problems and then walk away.
MPACT > Fall 2008 4
So he offered to work for Dale for one year, helping him determine his exact requirements, design solutions that met his requirements, and implement the solutions to create lasting change. In essence, he would help Dale establish a new vision for his company and create a custom solution that would allow him to achieve that vision.
Naturally, Dale had concerns. Cost was one; he’d be investing in what was essentially a part-time employee for an entire year. More worrisome, however, was the fear that he simply wouldn’t be able to put in the time required.
“Time is very valuable. I was already really, really busy. But I felt I had to do it some time and if I didn’t, I wouldn’t be able to handle everything. So I went for it,” he says.
Together, Matthew and Dale explored Dale’s issues and goals. They then asked the entire staff of Wood Visions to join them in a planning day.
“Organizational change is diffi cult to make. Success requires that each person affected by the change agrees that the change needs to occur and is willing to participate in a new way of operating,” says Matthew.
The planning day offered the employees, and Dale, the opportunity to share their vision for the company, openly discuss what they liked and didn’t like about current operations, and set goals that would measure the amount of change that occured.
The staff felt the company needed more organization. They also expressed a desire to take on more responsibility for making decisions, something Dale desperately wanted but wasn’t certain his staff was interested in undertaking.
“It was a learning process for both sides,” says Dale. “That day was kind of a turning point for our company because I think the employees realized [management] had a long term goal and we wanted them to be a part of it.”
A year later, Wood Visions is on the road to becoming the company Dale knew it could be. With Matthew’s help, Dale has implemented a number of changes that have resulted in a smoother operation.
Matthew’s business analysis determined that refi nishing services should be removed from the company’s service line, allowing Wood Visions to focus on its most profi table services.
Monthly staff meetings have also been initiated. While the fi rst few meetings were quiet affairs, they have blossomed into a forum for dealing with minor issues before they become big problems, and are an ideal setting for establishing the next month’s goals. “Those goals are actually being met and not just sitting on a list somewhere,” says Dale.
An employee incentive plan is also in place. Rather than reward staff for productivity, the plan provides a share of profits when specific goals are met.
“Each month, we measure each employee’s performance,” explains Matthew. “If they meet their performance on a quarterly basis, we then calculate how much profits improved and share those profits with the staff.”
Before the end of the engagement, Matthew taught staff members to do the work he’d been doing. He now visits quarterly and provides all accounting and advisory services to the company.
Dale says this process has been very valuable. “I recommend it to anybody who is in my situation, where you have a growing company that’s doing well but you know you could go to the next level if you could just create the time and the systems.”the next level if you could just create the time and the systems.”
employee’s performance,” explains
Until recently, paying yourself a bonus and simultaneously lowering your corporate income
was a good tax move. But recent changes in federal rules have today’s business owners/managers rethinking remuneration and other tax saving strategies.
a lOOK BaCK
It all started in 2006 when the federal government introduced new dividend
rules. Prior to that time, integration—which ensured tax remained the same regardless of whether you were incorporated—wasn’t working for corporations with earnings above the amount eligible for the small business tax deduction.
“In Alberta, for example, if you owned a private company and had earnings less than $300,000 per year, you received a preferential tax rate of
16.12 per cent,” explains Michael Unick, taxation specialist at MNP in Calgary, Alberta. Income above that figure was taxed at a much higher rate— up to 32.5 per cent in the Alberta example.
When corporations taxed at the small business rate paid dividends to shareholders, the shareholder received credit for the full amount of corporate tax paid. The shareholder did not
When is a bonus not a bonus? When it costs you money.
MPACT > Fall 2008 6
Keeping up with changing tax rules.
receive credit for the full corporate tax paid by the corporation on dividends from high rate income. In the Alberta example, you as the owner would consequently end up paying higher tax on dividends than if you’d taken the money out as a bonus.
Not surprisingly, bonuses were common. Then, in 2006, the federal government stepped in to eliminate the infl ated taxation on high rate income.
“The new dividend rules say that if a corporation pays a dividend out of retained earnings that were subject to the high rate of corporate tax, the shareholder gets a credit for that high rate of tax,” says Michael. Again using Alberta as an example, the new rules allow the shareholder a credit that approximates the corporate tax rate in Alberta in 2008 on dividends paid out from high rate income.
Michael notes that the concept doesn’t work perfectly in every province. The federal rate is set for an average across Canada; some provinces, such as Manitoba, have higher rates on dividends than others. “If you’re in Manitoba, you’re still discouraged from paying dividends, whereas in Alberta, the rates work well,” says Michael.
The TaBles Turn
In its 2008 budget, the federal government reduced corporate taxes; some provinces followed suit. The reduction, which varies by province, has interesting implications for business owners across Canada.
Alberta’s corporate tax rate will fall to 25 per cent in 2012. “In Alberta, if you pay yourself a bonus with the intent of lowering your corporate income to receive the preferential tax rate, you’re going to pay 39 per cent on that bonus,” explains Michael. “But if you leave that money in your corporation, by 2012 you’ll only pay 25 per cent.”
By foregoing the bonus and keeping the money in the company, you can defer 14 per centage points of tax. You can use that money to reinvest in your business. “Theoretically, you’ll make a return on the money, which will eventually go to you as the shareholder,” Michael points out.
asseT PrOne
The new rules may also affect the way you structure the sale of your business. Until now, most owners preferred to sell shares rather than assets in order to receive the capital gains tax rate. Today and in the future, the capital gains rate may actually be higher than the rate on eligible dividends.
Michael offers the Alberta example again. “The rate on eligible dividends, a dividend out of high rate tax, is 14.5 per cent next year, the current capital gains rate is 19.5 per cent. This is something completely new.”
If you have capital gains exemption availability, you’ll likely still want to sell your shares. If not, look at simply selling the assets and paying a dividend out of the cash left in the company.
WOrD TO The WIse
Michael warns that there is a downside to paying dividends. When more money is included in your income, you’re moved through the marginal tax rates at a faster pace. “Paying these eligible dividends will get you through the clawbacks of benefi ts such as the GST credit or child tax benefi t a lot faster.”
As federal and provincial rules change, your tax strategy must also evolve in order to remain effective.
For more information on how to improve your tax savings, contact Michael unick, Tax specialist at 403 .263 .3385 or contact your local MnP offi ce .
7
When is a bonus not a bonus? When it costs you money.
A cross the nation,
organizations are facing
empty desks, hiring for the
same position every few months,
or dealing with employees secretly
evaluating options elsewhere.
If you’re struggling to find and
keep top talent, you’re not alone.
In its 2008 Compensation Planning
Outlook Report, The Conference
Board of Canada listed attracting and
retaining talent as two of the top five
priorities for Canadian businesses.
Many of us blame external
factors, and we’re right to do so.
The highly competitive business
environment and increasing labour
shortages do make it hard to
find good people. But chalking
attraction and retention problems
up to bad luck doesn’t solve the
problem. Owners who want to
continue to be successful need
to proactively deal with the issue
by examining their compensation
packages and determining whether
the offer is still appropriate today.
“Gone are the days when you
could make sure the base pay was
sufficient and people would stay.
That’s not the case anymore,”
says the Compensation Practice
Leader for MNP, Catherine Gamby.
“Things have changed in terms
of what compensation packages
need to look like in order to remain
competitive and in order for you to
attract and keep your top people.”
Today’s compensation packages
include more variable pay
components such as cash bonuses,
profit sharing, incentive plans,
and stock options. Once a perk in
executive level positions, variable
pay plans are now being offered at all
levels by businesses large and small.
“The next generation coming
into the workforce wants to be
rewarded for doing good work,”
says Catherine. “The variable pay
component is very desirable and is
something they are requiring as part
of their package.”
To assess whether your compensation
plan is well positioned to attract and
retain the top talent it needs to be
successful. Catherine recommends the
following review process:
geT TO The BOTTOM
OF Issues
Your business is only as successful as
the people working in it. Don’t ignore
high turnover or unhappy employees
and attribute attraction and retention
issues to factors outside of your control.
Instead, get to the root of the issue.
How do you fi nd out if your
compensation package is to blame?
Sometimes, the fastest way is to
ask your employees outright. But
Catherine warns that such discussions
must be handled with care.
“In any type of HR discussion, whether
it’s an informal chat or a formal
employee satisfaction survey, you have
to be careful that you don’t raise the
expectations of employees and then
not be able to deliver,” she explains.
The key is to position your discussion
and questions as exploratory. Explain
that you want to hear staff concerns
and you’re committed to discovering
the causes of problems but aren’t yet
sure what form the solution will take.
The Money FactorIs YOur COMPensaTIOn
PaCKage WOrKIng?
MPACT > Fall 2008 8
9
eValuaTe YOur
CurrenT OFFerIng
If you determine your compensation
package is more of a turn-off than a
talent magnet, it’s time to take a cold,
hard look at what you’re offering and
how it stacks up in the marketplace.
Your fi rst step is to perform a
job analysis to define the roles of
each job. “Accurate job descriptions
are the foundation for many HR
components, including compensation
plans,” says Catherine. “If you
haven’t clearly defined what the
roles of each job are, you haven’t
built that foundation.”
Job descriptions should detail
the most important features
of a job, including the duties and
responsibilities that must be performed,
as well as the knowledge, skills,
and effort required for someone to
competently perform those duties.
With accurate job descriptions
in hand, you can then evaluate each
job in order to determine the internal
worth of the positions. A number of
evaluation techniques and tools can
be used for this task but essentially
you’ll be looking at factors such as
the level of complexity in the job, the
amount of judgment required, the
level of decision-making, the work
environment and so on. Your goal is
to develop a hierarchy or rank order
of positions that allows you to quickly
see how valuable each position (not
person) is within the organization.
lastly, determine the external
value of your key talent by
examining what other organizations
are offering in terms of compensation
(and benefits) packages. To do this
effectively, you must ensure you’re
comparing apples to apples.
“Your comparator organizations may
be different if you’re looking at an
executive position than those you
use when evaluating a receptionist
position,” says Catherine.
There are a number of ways to access
information about the compensation
packages of comparator organizations.
Telephone surveys work well if there are
two or three specifi c positions you want
to focus in on. Other options include
purchasing survey information or
obtaining third-party assistance to carry
out a customized compensation survey.
To assess whether your compensation
plan is well positioned to attract and
retain the top talent it needs to be
successful. Catherine recommends the
following review process:
geT TO The BOTTOM
OF Issues
Your business is only as successful as
the people working in it. Don’t ignore
high turnover or unhappy employees
and attribute attraction and retention
issues to factors outside of your control.
Instead, get to the root of the issue.
How do you fi nd out if your
compensation package is to blame?
Sometimes, the fastest way is to
ask your employees outright. But
Catherine warns that such discussions
must be handled with care.
“In any type of HR discussion, whether
it’s an informal chat or a formal
employee satisfaction survey, you have
to be careful that you don’t raise the
expectations of employees and then
not be able to deliver,” she explains.
The key is to position your discussion
and questions as exploratory. Explain
that you want to hear staff concerns
and you’re committed to discovering
the causes of problems but aren’t yet
sure what form the solution will take.
PuTTIng IT all TOgeTher
Going through the above process will allow you to come up with a solid, defensible, and
fair salary program through the development of a base salary structure. Although the
creation of a salary structure is fairly technical, requiring statistical analysis to integrate
the internal and external values of the positions, it’s easy to maintain once in place.
You should give your compensation package a quick review annually to
ensure competitiveness. A wholesale review should be carried out
when economic conditions warrant.
Variable Pay Plans:
The Wave of the Future
In an increasingly competitive
business climate, organizations of all
sizes are offering incentive plans for
entry-level and junior positions. Here
are a few things to watch for when
working out the variable components
of your compensation package:
ensure a line of sight . If
employees can’t see how they’ll
be able to impact the objective
you’ve set for them, then they
won’t be motivated to try and
your incentive plan won’t work.
Watch for double dipping . Don’t
reward the employee for achieving
the same goal twice. The objectives
set in your variable pay plan
must be different from those the
employee should be achieving as a
regular part of the job.
Make it measurable . Any
objective set, must be measurable.
Employees should be able to track
their performance on their own.
need more info?
For more information on
compensation planning,
contact your local MnP offi ce or
Catherine gamby ,
Compensation Practice leader
for MnP at 1-877-500-0795 .
Obtaining fi nancing when credit markets are tapped .
If you think the subprime mortgage fi asco wreaking havoc in the U.S. has nothing to do with you, think
again. The situation has affected credit markets globally and that’s having a signifi cant effect on Canadian businesses looking to access additional capital.
“Most of the Canadian banks were involved in some form with the subprime market in the United States. As a result, they’ve had to concentrate on cleaning up their own fi nancial balance sheet,” explains Wes Priebe, Senior Vice-President and Director with Tamarack Capital Advisors in Edmonton.
Canadian banks appear to have weathered the storm but, there’s been a signifi cant shift in their willingness to maintain their previous risk levels. As a result, they’ve tightened the parameters within which they are willing to provide debt fi nancing. Companies have to show more information and businesses in some sectors are fi nding it diffi cult to get a bank to look at their projects.
In fall 2007, Tamarack Capital’s Vice-President and Director in Calgary, Doug Bedard, had a list of 35 fi nancial institutions to approach about fi nancing for a forestry company. “By the time we went through the process and simultaneously watched the subprime effect on the market, we were down to three or four lenders still interested in looking at the forestry sector,” he says.
CreaTIVITY COunTs
With traditional credit markets
tightening their
belts,
companies have to craft creative solutions to meet fi nancing requirements.
Mezzanine fi nancing is one solution. Banks or specialized lenders provide subordinated debt, which is then recognized as equity or quasi-equity by senior lenders.
It is a more expensive option, but it’s one way to make your project more palatable to traditional lenders.
You can also explore alternative lenders. Banks need to see strong working capital, a strong equity position, and good cash fl ow. Alternative lenders are willing to look at other aspects of the business.
Subordinated debt lenders, for example, tend to make decisions based on your free or surplus cash fl ow (cash available after debt servicing) rather than on assets or overall leverage.
Wes has assisted in several management buy out situations. “In those management buy outs, you try to leverage as much debt against the assets within the company as possible. That can lead into a larger amount of debt in relation to equity, highly leveraging the company and limiting the amount banks will be prepared to fi nance,” he explains. If the company has proven surplus cashfl ow, subordinated debt lenders may be willing to provide the capital with the subordinated debt viewed as equity to the lenders and thereby improving the leverage.
Asset-based lenders will look at fi nancing receivables and inventory, something traditional lenders aren’t comfortable doing, especially inventory. Asset-based lenders participation is not limited to stringent debt to equity covenants required by the traditional lenders; decisions are based on the
quality of the assets being fi nanced. Again, it’s a more expensive form of fi nancing, but the additional costs may be worth the expenditure, particularly for businesses growing at a rapid rate or with limited fi xed assets.
COsT Versus OPPOrTunITY
Should you explore more expensive forms of fi nancing? You may have no choice given what appears to be a further tightening of credit policies by the lenders.
The tightening of credit markets is not limited to traditional sources of fi nancing. “Today, subdebt and asset-based lenders are taking a harder, longer look before making their decision than they were a year ago,” says Wes.
A business case analysis comparing the cost of different forms of financing and the cost of not proceeding with your project is recommended.
PreParaTIOn Is KeY
“Some of our lenders are experts in a certain industry sector. If you have a project that aligns with them, and if their risk management team can understand your project or business very well, you may have a good opportunity to raise debt with that institution,” explains Doug.
The key to approaching lenders is preparation. The more information you provide, the faster you’ll be matched with the appropriate source of capital and the better able the lender will be to make a timely decision.
For more information on corporate finance solutions, call Wes Priebe, senior Vice-President with Tamarack Capital at 780 .451 .4406 .
Y ou’re dealing with a complicated merger. The business down the street needs
a new IT system. Next door, there’s a company looking at downsizing.
Three very different situations with one thing in common: they’re examples of organizational change that can all be managed using the same process.
“There is often a tendency to think, in a specifi c situation of implementing change, that your situation is utterly and uniquely different from any other time someone’s implemented change,” says Mackenzie Kyle, MNP’s Project Management Practice Leader, based in Calgary.
Mackenzie and Jennifer Trost, a Project Management Advisor in MNP’s Vancouver offi ce, suggest treating changes as projects and using project management skills and techniques to get from where you are, to where you want to be.
With project management tools, skills, and knowledge, you can develop and execute a sound, feasible plan allowing you to achieve stakeholder buy in and the desired result. You’ll know what’s happening at each stage of your change project, be able to anticipate and thus mitigate risks, and ultimately, complete the project as quickly and cost-effectively as possible.
Here are fi ve key steps to managing your next change:
have a vision .1 . “Regardless of the type of change you’re trying to manage, you’re going from status quo to the desired end state,” says Jennifer, who’s helped clients in a number of industries transition smoothly through complicated changes.
Determining your goals and ensuring management is clear on the vision for the project sets the stage for ultimate success.
let the problem defi ne the solution . 2 . “You want to ensure you aren’t going to solve a problem that didn’t exist or address something that doesn’t really have anything to do with the major issue you’re struggling with,” says Mackenzie.
Unearth the root causes of issues before attempting to develop a solution. A third party can be invaluable in this process, providing fresh and objective insight.
“When you’ve been in any particular organization for a long time, it’s very hard to see that there might be a different way of doing things or there might be a different angle to a situation or an issue,” notes Karina Brino, Executive Director of Policy and Sustainability at the B.C. Ministry of Energy, Mines and Petroleum Resources.
In 2004, Mackenzie helped the ministry navigate its way through a signifi cant strategic change. “Mackenzie’s perspective on our issues was quite important to us,” Karina explains.
Devote the required resources . 3 . Ensure appointed personnel have the time they need to carry out their new responsibilities and consider outsourcing change management for long-term, complicated projects.
Just as important is the need to give those responsible for the change the knowledge and tools for effective management. Karina and her staff took MNP’s intensive two-day
project management workshop during their work with Mackenzie, acquiring skills and techniques they continue to use to this day.
Identify stakeholders early . 4 . Leaving stakeholders out of the planning process decreases the chance of them adopting the change. Early involvement and a willingness to listen to stakeholders leaves them feeling engaged in the change process.
A stakeholder analysis will determine the internal and external stakeholders, which may change for different phases of long-term change projects.
Document your plan . 5 . Once you know your goal and how to achieve it, break the work down into separate activities and assign durations and resources. Your plan should also include the risks at each stage of the project, the impacts of those risks, and mitigation techniques.
Any deviations from the plan should be communicated immediately to the appropriate stakeholders.
“By involving the stakeholders this way, you’re getting buy in at every stage,” says Jennifer.
Successful change doesn’t occur by itself. Applying a change management system guides you through the transition and ensures you reach your goal as painlessly as possible.
For more information on change management, contact Mackenzie Kyle, MnP Project Management leader at 403 .537 .8430 or Jennifer Trost, Project Management advisor at 604 .637 .1581 or your local MnP offi ce .
How to successfully navigate changes in your organization.
CHANGE Betterfor the
New accounting standards may still take a one-size-fi ts-all approach.FOR OWNER-MANAGED ENTERPRISES (FOME)
A new accounting framework intended to simplify fi nancial reporting for very small
private enterprises may not become generally accepted accounting after all.
The Canadian Institute of Chartered Accountants (CICA) initiated the development of the Framework for Owner-Managed Enterprises (FOME) in an attempt to simplify reporting standards for owner-managed enterprises without significant external users.
Current accounting standards take a one-size-fits-all approach and apply to all enterprises, from the largest public corporation to the smallest private company. FOME was developed for use by enterprises that borrow less than $250,000; may not have an accountant on staff; rely on financial statements for performance, asset and debt assessments; and use those statements for banking, financing and filing income taxes.
If FOME became generally accepted, public accountants would be able
to provide assurance on financial statements prepared under the new framework.
CICA invited public comment on the framework in early 2008.
“The FOME document discussion paper attracted more responses than anything else the CICA or the Accounting Standards Board (AcSB) has ever done,” says Brian Drayton, an assurance partner for MNP in Regina.
The majority of the approximately 300 responses indicated general approval of the plan to simplify reporting standards and the concepts presented in the FOME document.
But many of those responding expressed concern about an accounting framework developed for one type of enterprise. “Many people said they don’t want to end up with half a dozen Generally Accepted Accounting Principles (GAAP) in Canada,” says Brian.
The public wanted to avoid the creation of multiple GAAP standards,
“The existing
CICA Handbook
will apply until a
new standard is
in place.”
MPACT > Fall 2008 12
something the AcSB agreed could be an issue, and not just for those trying to figure out which standard to apply. Multiple sets of standards compromise the comparability of financial statements as well as complicate training, education and maintenance of standards over time.
Consequently, the AcSB is exploring the possibility of developing a single solution applicable to all Canadian private enterprises, regardless of size or user group.
It’s a return to the one-size-fits-all approach, but with a twist.
The adoption of the International Financial Reporting Standards (IFRS) for publicly accountable companies—set to kick in on January 1, 2011— removes large public enterprises from the equation. At that time, one size or set of reporting standards will no longer have to stretch to accommodate the needs of publicly accountable enterprises.
“That’s important, because the reporting needs and business
situation of publicly accountable companies are more complicated than the needs and situation of private enterprises,” says Brian.
Obviously, private companies come in all sizes and their reporting needs vary; a simplified GAAP may not work for very large private enterprises operating internationally or globally. These companies, says Brian, may wish to elect to adopt the IRFS if a new or revised GAAP for private enterprises doesn’t work for them.
Brian is a member of the Accounting Standards Board and is the chairman of the Advisory Committee on Non-Publicly Accountable Enterprises, established by the AcSB to look at the issue and develop a possible solution. The project is being fast-tracked; the committee plans to present a working document to the AcSB in fall 2008 and hopes to ask for public input by the end of the year. If the committee finds a new GAAP standard is warranted, the standard should be in place by mid-2009.
Until that time, the private sector can relax. Concerns surrounding changing reporting standards and what the new GAAP will look like aren’t warranted.
The existing CICA Handbook will apply until a new standard is in place. “The worst case scenario is that they’ll end up with what they have right now,” says Brian. “The best case scenario is that we’ll develop a new GAAP standard in Canada that will be significantly simplified and perhaps better meet the need of all private enterprise.”
FOME is still in existence and any company not requiring GAAP based financial statements is free to adopt its provisions with the awareness that it is not likely to become a standard.
For more information on FOMe and revisions to gaaP, call Brian Drayton, assurance Partner at 306 .790 .7900 or contact your local MnP offi ce .
13
MPACT > Fall 2008 14
A t any point in time, there are numerous steps you can take to improve your business. The
challenge, of course, is deciding what to do fi rst. Business diagnostics can help.
designed to help you assess strengths and weaknesses, identify issues affecting performance, pinpoint possible improvements, and create action plans, business diagnostics are perfect for prioritizing the changes you need to make so you can begin to reap the benefi ts of improvement as quickly as possible.
“Through a business diagnostic, you may discover seven things you should address,” says mark Brown, director Business Consulting Services, meyers Norris Penny. “If the fi rst item is going to be very diffi cult to do, you may want to put it further down on the to-do list and select a couple you can complete fairly quickly, that will give you a reasonably good pay off.
By prioritizing the changes you want to implement, you can buy time to deal with the changes that require the most resources while steadily working toward a new level of success.
The PrOCess
“using business diagnostics, you get to the root cause of why things aren’t working the way they should and fi gure out what projects have the highest potential for signifi cant return, then address those in order of importance,” says mark.
The typical business diagnostic begins with a detailed look at the profile of the company and the landscape in which you operate. Then a custom project plan is created to guide the remainder of the process.
A full analysis of your core business processes determines areas in which you are out of balance. Your efforts are assessed in eight key areas:
Business strategy Products and services Organizational structure Human resources Organizational culture Finances Technology Customer relations
Findings can be surprising. “You may fi nd, for example, that the one customer that gives you 50 per cent of your business is responsible for only 20 per cent of your profi ts,” explains mark. “That means you’re out of balance.”
once you understand exactly what’s wrong and what’s driving the issue, it’s time for phase four of the diagnostic process. This is an opportunity to identify potential solutions, determine the probability of success for each solution, and calculate the pay out.
with all information collected, you can prioritize fairly easily. “You want to look at the level of pain created by each issue. If it’s an intense, acute pain, you will want to deal with that fairly quickly,” says mark.
You also need to determine if the change makes sense. In most cases, improvements are worth the time, money, and effort spent on implementation; comparing the cost of not doing it to the cost of making the change provides certainty. And, of course, some initiatives will pay off faster than others.
In the final phase of the process, you’ll create short-term, mid-term, and long-term action plans, providing you with a road map to guide your change efforts.
The entire diagnostic process takes up to a month to create the list of projects and to determine the priority for addressing those projects, depending on the size and scope of your business. owners should be prepared to dedicate time; your input is required to develop a complete picture of your operation, business climate, and issues. Staff members, who often have a different and sometimes more accurate perspective on problems, should also set aside time.
Is a business diagnostic worth it? why not simply jump in and start making the adjustments you know you need to make? Says mark: “when you’re refocusing the business, whatever time and effort you spend on diagnostics will pay off several times because now you’re going to be addressing the right opportunities rather than taking a trial and error approach.”
How to decide what to do first in your business.
How to decide what to do first in your business.
Growing enterprises
while growth is always desirable, it’s also extremely
challenging. “You can often grow to bankruptcy,”
mark warns.
during periods of growth, business diagnostics
help with:
Structuring cash flow to finance growth
Increasing capacity to keep up with demand
Creating a more detailed organizational
structure
Adjusting processes for optimal efficiency
Structuring information technology to provide a
higher level of information
Start-upsIncreasingly, business owners are realizing the importance of starting off on the right foot. “The needs are more obvious, so the diagnosis is less complicated,” notes mark. “The goal is simply to get everything working right the first time and improve overall performance, thus reducing the chance of failure.”
If you’re just starting out, business diagnostics can help you:
Organize a business plan Identify your financing needs and opportunities Identify and design efficient business processes
15
How Can Business
Diagnostics Help You?
Companies can use business diagnostics
in every stage of the business life cycle.
what you’ll look at will vary, however,
because businesses at different stages have
different needs. Here’s a look at how they
can help you:
Challenged businessesolder businesses with aging product lines experiencing declining sales need to make changes sooner rather than later. often there are cash flow problems; working capital may be tied up in obsolete or excess inventory, or there may be issues surrounding the ability to collect from some customers.In these cases, business diagnostics are useful for: Identifying ways to improve operational efficiency Analyzing market and product opportunities Developing new ways to attract and retain employees Structuring cash flow Developing and managing new technology
For more information on how a business diagnostic can help, call Mark Brown, Director Business Consulting services at 1 .877 .500 .0792 or your local MnP office .
Mature businessesIf growth has slowed or stopped altogether, diagnostics can help you determine why and identify the changes to make to rectify the situation.
For mature businesses, business diagnostics can help you:
Analyze your current strengths and weaknesses
Identify and select research and development opportunities
Analyze growth strategies
Identify and analyze potential markets, such as new geographical markets or customer groups
MPACT is published two times a year by meyers Norris Penny. It provides information that is necessarily general in nature. For guidance on your individual situation, we recommend you consult your mNP professional.
Postmaster, if undeliverable, please return with forwarding address noted to: meyers Norris Penny LLP, #800, 700 - 6th Ave Sw Calgary, AB T2P 0T8
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Chartered Accountants and Business Advisors 1.877.500.0792 mnp.ca
Finding theright answerstarts here.
At Meyers Norris Penny, having a cup of coffee is a chance to sit down one-on-one, exchange ideas and develop relationships.
Through those relationships we can better understand you and your business and provide stronger strategies that will take you
where you want to go. As the 7th largest accountancy and business advisory firm in Canada, our professionals provide world-class
expertise, in-depth knowledge and personalized service to find the right solutions for you and your business.
To find out what we can do for you, call Randy Mowat, Vice-President, Marketing at 1.877.500.0972.
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