THE fallout of the Global Financial Crisis (GFC) and the uncertainty surrounding world markets is also leading major banks in Australia to move away from providing funding to the SME market, according to research by Mullins Law. 

“Unless the facilities can be supported with real property to a maximum lend of 50 percent of the value, they are not interested,” Mullins Law partner David Williams said.

“There is currently a vacuum developing within the marketplace and opportunity for investors to enter this market. In the construction market for apartments and other commercial activity there has already developed mezzanine funding alternatives to rescue the developers.

“For the SME market, it is not a question of what interest rate the SME market may pay, but more the availability of funding in the first place as it is not otherwise available.”

Mr Williams said the SME market was also now witnessing the emergence of the high-net-worth family businesses that are seriously looking at filling the gap in providing funding to the SME market.

Another factor was the successful listing of ‘factoring’ – now known as debtor finance – specialists Scottish Pacific in July, on the back of several successful acquisitions such as former rival Bibby.

“In any event, there are already new entrants in the funding market that are emerging which need to be seriously looked at by the SME market,” Mr Williams said. “The major banks may, in the future, rue the day that they did not seriously engage in looking after the SME market.

“Institutional private equity is concentrating at the big end of the market where they are looking at takeovers of underperforming public companies, therefore there is an enormous gap in the true private equity model that is built upon family business wealth.

“This opportunity may become a major contributor to the Australian capital markets in the near future,” Mr Williams said.

www.mullinslaw.com.au

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THE role of the chief financial officer (CFO) is being morphed and challenged by ‘disruptive forces’ according to a new report by global business advisory group EY – and nowhere is it being felt more powerfully than Australia.

For example, more than 80 percent of Australian and New Zealand CFOs expect to take on more strategic responsibilities -- significantly higher than the global average of 64 percent – and about half these CFOs say they need to build their digital understanding. Yet the report flags concerns by most CFOs that neither they nor their teams currently possess the capabilities this new role will demand, 

Traditional career paths are changing dramatically, with EY’s report showing only 40 percent of CFOs globally are now qualified accountants.

EY’s The DNA of the CFO 2016 report, based on a survey of nearly 800 finance leaders worldwide, found that digital innovation, the proliferation of data, new regulations and increasingly demanding stakeholders are combining to disrupt and reshape the CFO role.

EY Finance Management Consulting leader for Oceania, Donal Graham said finance staff needed to be given access to much broader experience and greater development opportunities to help address worrying skills gaps.

While 82 percent of CFOs surveyed across Australia and New Zealand expected they would be asked to take on wider operational leadership roles, beyond finance, in the coming years, this trend towards increased responsibilities is already evident, with 58 percent of local CFOs surveyed spending more time defining and developing the overall strategy for their company than they did five years ago.

In this environment, it is concerning that 62 percent of local CFOs say the current finance function does not have the right mix of capabilities to meet future strategic priorities (compared with 47 percent globally).

“In EY’s first The DNA of the CFOstudy, conducted in 2010, we painted a picture of a role that had already broadened to encompass not only traditional financial skills, but also more strategic and market-facing responsibilities,” Mr Graham said.

“Six years on, our latest CFO research study has found that change has accelerated even more rapidly than many would have thought possible.

“While this presents an opportunity for CFOs to really shape the contribution they make to the business, it also means that those who don’t proactively redefine their role may be at risk of failing to provide the financial and strategic leadership their organisation needs,” Mr Graham said.

“Australian and New Zealand organisations should be considering more investment and sophistication in the managing of finance talent and matching staff to the right opportunities to help equip them for more demanding and complex roles.”

MORE DATA ACCESS

More than half (54%) of local CFOs surveyed said they are now spending more time providing analysis, such as data-driven analytics and strategic risk assessments, to support the CEO and senior leadership team.

“Finance chiefs are being required to evaluate their organisation’s investment in digital, challenging them to find new metrics to measure business cases and return on investment,” Mr Graham said.

“As they upgrade technology and move to cloud-based systems, finance departments have access to more data than ever before. However, it seems many local finance teams may not yet be particularly well-equipped to interpret this data and draw out insights to help truly inform strategic decisions.

“In fact, 54 percent of Oceania CFOs admit they need to build their own understanding of digital, smart technologies and sophisticated data analytics. So this is clearly an area that requires further focus.”

MANAGING RISK

More than anywhere else in the world, Oceania CFOs believe risk management needs to be more of a priority, with two-thirds (66%) saying this will be a critical finance capability in the future – compared with a global average of 57 percent.

“To some extent, local CFOs are acknowledging they need to catch up. To date, Australia and New Zealand haven’t been subject to the same level of scrutiny around regulation and risk management as many other parts of the world – particularly the US, where the financial crisis placed an intense focus on risk management,” Mr Graham said.

“However, local CFOs are starting to acknowledge that risk management needs to go beyond mere compliance and integrate more fully with the overall business strategy.

“New corporate management technologies are enabling more sophisticated stress testing of business plans and associated risk weighting. CFOs need to be able to leverage those tools to monitor assumptions in the strategic plan, and be ready to pivot the business strategy if the assumptions no longer hold.”

CFO DNA CHANGING

In such a fluid environment, defining the skills and qualities necessary for success as a CFO is a moving target, according to Mr Graham.

“Pinpointing exactly what makes a successful finance leader is becoming increasingly challenging as the role continues to evolve, but it’s fair to say the traditional chartered accounting career development path is insufficient to equip CFOs for the new challenges they are facing,” Mr Graham said.

“In fact, the survey found a marked difference between the career paths of CFOs globally and those in Oceania. Only 40 percent of CFOs surveyed globally had a professional accounting qualification.

“This is in stark comparison to Australia and New Zealand, where the vast majority (88%) hold a professional accounting qualification. In contrast, global CFOs were more than twice as likely as Oceania CFOs to have MBAs.

“The business environment is more complex, interconnected and unpredictable than ever. Digitization, data, stakeholder scrutiny and risk volatility are changing the rules of the game and CFOs, like all leaders, need to adapt to this increasing complexity, focusing on the attributes and skills that their companies will need to succeed in the future,” Mr Graham said.

“Finance leaders should be taking pre-emptive steps to future-proof their role and expand the finance functions capabilities, or run the risk of being marginalized from the senior decision-making circle.

“The most successful CFOs will be those who can proactively shape their role in response to the major forces transforming the business environment.”

EY’s DNA of the CFO report: Do you define your CFO role? Or does it define you? surveyed 769 finance leaders worldwide, including 50 respondents from Australia and New Zealand, between December 2015 and February 2016. The survey results were supplemented by individual interviews with 21 CFOs from leading organisations.

www.ey.com

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THE Australian Bankers Association (ABA) has established a website to assist small businesses in obtaining bank loans.

The move has come in reaction small-to-medium enterprises (SMEs) complaints since the Global Financial Crisis of challenges in obtaining bank finance. The banking industry claims loans to the sector are dramatically on the rise.

“Banks approved $88 billion in new small business loans last year, which is $11 billion more than two years ago,” ABA chief executive Steven Münchenberg said. 

“While banks’ lending to the small businesses sector is strong, we recognise that for some small businesses being able to access finance is still a concern. To help with this, we have developed a new website that explains what banks look for in assessing loan applications. It also shows how different types of finance may suit different small businesses,” he said.

The website – financingyoursmallbusiness.com.au – was developed in conjunction with CPA Australia and with the support of the Council of Small Business Australia (COSBOA) and NSW Business Chamber.

It features a step-by-step guide to completing a loan application, with particular emphasis on preparing a business plan.

CPA Australia chief executive Alex Malley said the ability of small business to articulate the how and why of their venture is extremely important to the success of their loan application.

“If we have small businesses growing, spending on new plant and equipment and expanding their markets, then they are sustaining and creating jobs and that’s precisely what our nation needs,” Mr Malley said. 

COSBOA CEO Peter Strong said, “This is a great initiative by the banking industry and will help people who want to start, buy or expand a business save time and stress.”

NSW Business Chamber chief executive Stephen Cartwright said, “For small to medium businesses having access to finance is crucial to their success. Having this resource for SMEs to understand the right type of finance for their needs will help maximise their potential and in turn, help Australia’s economy to grow."

Mr Münchenberg said over the past couple of years the ABA has worked with COSBOA and CPA Australia to better understand the issues faced by small businesses.

“We realised that small businesses would benefit from guidance on how to present information in a loan application that goes beyond just providing the company accounts,” he said.

www.financingyoursmallbusiness.com.au

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AUSTRALIAN-developed small-to-medium enterprise cloud accounting software, Reckon One, went live in the UK in May.

ASX-listed Reckon Limited has long seen the UK as a major target market. According to UK Department for Business Innovation and Skills estimates, almost 99 percent of the country’s 5.4 million private sector businesses are SMEs. 

The department’s figures show the UK possesses a high level of technological literacy but only a small proportion of SMEs are utilising cloud-based accounting solutions – perhaps as little as 10 percent.

“The size and demographics of the UK’s SME market represents a compelling opportunity for Reckon,” Reckon Ltd CEO Clive Rabie said. “We are well positioned to own the market and educate businesses on the future of online accounting, and support SMEs as they grow from startup to success.

“Our expansion of Reckon One into the UK illustrates our commitment to long-term growth within the company and will cement our reputation as a trusted and innovative software provider.  Unlike our major competitors, we have built Reckon One entirely in-house using exclusively Australian resources. We are enormously proud to be expanding and taking on companies in the UK,” he said.

“The news caps-off an exciting 12 months for Reckon. We have launched Reckon One, added a payroll module which has expanded the product’s reach from sole-traders to SMEs and large businesses, and we are now launching the completed product internationally.”

Reckon has more than 20 years’ experience developing accounting solutions and the upcoming launch of Reckon One in the UK is in-line with the company’s commitment to develop a suite of internationally recognised products that will deliver long-term returns.

Reckon Ltd also operates in the US and New Zealand.

www.reckon.com/one

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