FIFO CAPITAL
Thinking ahead for success
QUARTER 1 • 2020 P1... Daniela Perdomo: breaking down barriers in telecommunications P5... Manufacturers and wholesalers need to master cash flow to prosper P9... Ethan Brown: making meat sustainable P13... Trust is central to a collaborative and innovative company culture P17... Jun Wang: reinventing healthcare with the “Digital We” P21... Create conditions in which your business will operate tomorrow
We’re here to help. Business finance when you need it. Working capital to support and grow your business We know that the working capital your business needs to support and grow can easily exceed what other financiers can approve. And that’s where we can help, with flexible financial options from $10,000 to $1 million. We understand, because we’re business owners like you When you talk to us, you’re talking to a business owner like you. We’re a privately held finance company, which means we can be innovative in our approach and work closely with our customers. We’re all about keeping things simple – from a single point-ofcontact who’s also the decision maker, to a 24-hours turnaround time… all with minimal paperwork. We don’t require long term contracts or property security – and it’s up to you when you choose to use our services and when to stop. All with no impact on your existing lending arrangements In fact, banks often recommend us as preferred short-term funding option. And because we work as a complementary service, there’s no need to refinance your current funding facilities.
Contact Fifo Capital today for more information
1300 852 556 fifocapital.com.au
About Fifo Capital Fifo Capital is a leading provider of business finance solutions, specialising in solving short term finance needs fast with purpose-fit solutions and one-on-one expert consultancy. With over ten years supporting clients across all industries, our specialists work with the unique complexities of business clients, to identify finance solutions that are appropriate for both short term needs and long term sustainability. Working alongside clients’ financial professional advisers and in harmony with their existing banking facilities, our finance solutions are very often bespoke to each client and designed to fit their specific need at that point in time.
Since launching in 2004, Fifo Capital has established more than 70 offices across New Zealand, Australia, United Kingdom, and Ireland, and provided business owners $1 billion growth capital finance.
Welcome Welcome to Fifo Capital’s Headway magazine, the first in this MMXX leap year. It’s only March and we’ve already experienced large events that are impacting people and businesses around the globe. In two short months we’ve seen the Impeachment proceedings of President Donald Trump; USA almost going to war with Iran over the assassination of Iran’s most senior military figure; the Duke and Duchess of Sussex (Harry and Meghan) stepping back as senior members of the Royal Family; Australia’s devastating bush fires which saw millions of hectares of land burned along with the destruction of homes and the death of people and wildlife; Brexit, where British MPs backed the EU Withdrawal Agreement Bill, and they entered into an 11-month transition period; and last but not least, the coronavirus outbreak which the World Health Organisation has stated could reach pandemic levels. No matter where you operate in the world outside events can always impact you. For instance, as coronavirus goes global, it’s already seriously interrupting supply chains and presenting challenges that are impacting worldwide economies; so much so that the next global recession could be just around the corner. Consumers, governments and businesses have reacted to the outbreak but being proactive is
always better than being reactive; especially when it comes to money. Nonetheless, businesses can still prepare for tough economic times. That means taking control of your cash flow with financing tools like invoice finance and supply chain finance to prevent cash flow interruptions, and streamlining your operations. When you boost your financial flexibility, and develop innovative solutions to your problems, you can often find ways to compete, and to grow — even as the economy as a whole slows down. This edition of Headway has several articles that are timely given the current global climate. In particular, using supply chain finance and invoice finance to cut costs and become more efficient; stabilising cash flow to access growth capital in a turbulent global economy; and boosting growth safely with short term financing, and more. We also feature Daniela Perdomo who broke down barriers in telecommunications; Jun Wang who is reinventing healthcare with the “Digital We”; and Ethan Brown who is making meat sustainable. As always, we’re here to offer personal, bespoke advice to help you grow your business. Best regards, and enjoy this quarter’s Headway. Best regards, Nigel Thomson Founder & CEO, Fifo Capital
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Daniela Perdomo: breaking down barriers in telecommunications Manufacturers and wholesalers need to master cash flow to prosper Cash flow resolutions to get ready for growth in the new year Ethan Brown: making meat sustainable Trust is central to a collaborative and innovative company culture Get your business ready to make it big in 2020 Jun Wang: reinventing healthcare with the “Digital We” Stabilise cash flow to access growth capital in a turbulent global economy Create conditions in which your business will operate tomorrow Boosting growth safely with short term financing
Published by Fifo Capital International Ltd.
Headway magazine is published four times a year. Copyright © 2016 by Fifo Capital International Ltd. Email info@fifocapital.com. Visit www.fifocapital.com. All rights reserved.
What we're building is, basically, the ability for people to create bottom-up communications,... I think that's really powerful.
Daniela Perdomo:
breaking down barriers in telecommunications Our telecommunications services are dominated by big businesses, which, in some areas, operate as near-monopolies. This is because our phone and internet services rely on massive, complex, and expensive infrastructure. New businesses can often never seriously challenge major established competitors, because they can’t afford to build their own infrastructure. Instead, budget services often rent low-priority bandwidth from networks owned by larger competitors. This, more than any other factor, is what makes the success of GoTenna, founded by Daniela and Jorge Perdomo, so remarkable.
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GoTenna allows cellphone users to communicate without the use of traditional cell phone towers. Instead, they rely on a peer-to-peer mesh-network. While the company was founded in 2012, it has recently caught the attention of investors as well as governments who recognise the potential of the emerging technology. After previously raising over $17 million, GoTenna upped the ante in 2019, raising $24 million through a combination of investment and debt financing from Comcast Ventures, Union Square Ventures, Collaborative Fund, Walden VC, MentorTech, and Bloomberg Beta, and Silicon Valley Bank.
Early career While entrepreneurs come from a wide variety of backgrounds, many draw on that background to facilitate their success
later in life. Daniela Perdomo grew up in Sao Paulo, and started her career outside the tech sector, as a community organiser focused on homelessness and immigrants’ rights. She followed this with a stint as a journalist for the Los Angeles Times, before moving on to San Francisco to work in a variety of tech startups. The unique combination of these experiences, while seemingly unrelated, ultimately enabled her to succeed as an entrepreneur
Founding GoTenna In 2012, Hurricane Sandy knocked out much of the communications network in New York City, where Perdomo was living at the time. While everyone waited for services to be restored, Daniela Perdomo considered the problem at hand. A simple weather event had transformed her cell phone,
an incredibly sophisticated communication device, into a paperweight. In ordinary times, that would be an annoying inconvenience, however during and after a hurricane it might prevent people from contacting emergency services or loved ones when they need to most.
telecommunications infrastructure. Not only does it continue to function when the primary network is down, it allows users to connect with each other when the existing infrastructure is insufficient in the first place.
Perdomo recognised the problem, and soon came up with an innovative solution. Smartphones are versatile devices, and are designed to work with other devices as needed. If connected to a radio transmitter/receiver “node� via bluetooth, a cell phone can easily communicate with other such nodes and anyone connected to them. More importantly, these nodes can relay encrypted data onward, creating a massive local area network. This allows it to work independently of any stationary
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Providing communications services when people need them most GoTenna doesn’t currently work to replace existing telecommunications infrastructure. It doesn’t connect users to the internet, and can’t connect people across the globe. Instead, it functions as a back-up, allowing people in the same region to communicate instantly when they otherwise wouldn’t be able to. Perdomo didn’t originally expect most regular consumers to recognise the potential of her product. As she hoped, though, government entities and consumers in disaster-prone regions, such as hurricane-ravaged Puerto Rico and Florida in the US, have used GoTenna to great effect.
savvy consumers pounced, creating their own permanent nodes, and establishing networks in their areas. While densely populated regions of the US currently have the largest networks, the number of devices in other countries has steadily grown as well. Provided that these mesh networks become dense and widespread enough, there is no reason why they couldn’t eventually be connected to an Internet Service Provider. A GoTenna node sells for approximately $100 USD, which is no more than many Americans, currently the company’s primary market, pay for cell phone service every month. This makes the company competitive as a backupcommunications provider, while providing it with the revenues it
needs to grow and continue to develop its product. Perdomo isn’t waiting for the public to purchase their own nodes, though. Instead, she’s working to encourage cellphone manufacturers to integrate her technology directly into their devices.
What we can learn Perdomo originally set out to ensure that people had access to instant communications during a disaster, when they would need them most. In solving that problem, she may have changed the game for the telecommunications industry. That’s because, by introducing GoTenna’s mesh networks, she showed that the high barrier to entry to the telecommunications industry could be broken down.
Looking to the future While GoTenna hasn’t disrupted the telecommunications industry yet, it has the potential to improve coverage for users while reducing cost. When GoTenna’s mesh network devices were released in 2017, hundreds of thousands of tech-
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Entrepreneurs constantly innovate to solve novel problems as a way to establish themselves. Perdomo’s experience shows us how solving one problem can provide solutions to other, much larger challenges as well. To do so, we must simply consider the implications of those solutions, and what new options they provide us with.
When expertise counts Not all business finance needs can be solved with vanilla solutions. When an expert sounding-board is needed, Fifo Capital can help: • One-on-one consultancy (complimentary) with a business finance specialist • Fast response and approval of finance (24 hours) to meet changing business needs • Consultancy in partnership with your financial advisers and with banking facilities • Solution-solvers for short term needs, and long term sustainability. When your business finance needs demand expert thinking and purpose-fit solutions, call Fifo Capital on 1300 852 556
For many businesses, a lack of healthy and predictable cash flow is the single biggest barrier to success. This is illustrated by ASIC’s most recent insolvency report, which shows that inadequate cash flow is the most common cause of business failure. Of 7,498 administrators’ reports lodged in the 12-month period before June 2019, 51 per cent indicated this as the most common cause of insolvency. The top industries affected were 5
UTILISE TRADE FINANCE OPTIONS
AVOID CASH FLOW INTERRUPTION
MANAGE CASH CONVERSION CYCLE
Manufacturers and wholesalers need to master cash flow to prosper
manufacturers, wholesale traders, and accommodation and food services. While all businesses struggle with cash flow, manufacturers and wholesalers are especially vulnerable. This is, in part, because they often import large supply shipments from overseas, requiring them to invest a lot of working capital in a long cash conversion cycle. Not only are their capacities limited by the amount of working capital they can bring to bear, a cash flow interruption can also prevent the timely reinvestment of that working capital, potentially disrupting operations.
behalf. Unfortunately, traditional trade finance is an imperfect solution for many wholesalers and manufacturers. The facility is traditionally secured against the supplies that they are used to purchase. This means that, until the business is actually in possession of those supplies, the financier can’t issue the payment. The supplier, on the other hand, can’t take the risk of sending valuable supplies overseas without payment in hand. To deal with this, businesses are typically required to pay a deposit to the financier up front. However, the value of this deposit is often so high that businesses can’t afford to pay it. Moreover, even if they can, that working capital is then out of reach until after the shipment arrives.
Fifo Capital offers a better kind of trade finance Fifo Capital’s trade finance deals with this problem by giving businesses the opportunity to also finance their deposit. That deposit payment can then be secured against an outstanding invoice or other asset instead of against the stock being purchased. This way, businesses can purchase supplies without investing any of their own capital up front.
No business can afford to shut down production every time it faces an untimely cash flow interruption. To protect themselves from this, they can use trade finance and invoice finance to improve their working capital position.
Traditional trade finance doesn’t work for many businesses Many businesses who import goods from overseas already use trade finance to fund their purchases. Instead of purchasing the goods outright, they work with a financier, who will make payment to the supplier on their
This type of trade finance facility is designed to help businesses to fully finance their operations. Because of this, payment on this facility can then be deferred by up to 150 days. This gives businesses the time they need to import supplies, process them, and sell them to customers. Some businesses, though, have cash conversion cycles that exceed
150 days, while others might face cash flow interruptions that could still destabilise their operations. In cases like those, invoice finance provides additional support.
Use invoice finance to fully finance your operation Invoice finance is an additional financing tool that businesses can use to bring in revenues more quickly. Instead of waiting for an outstanding invoice to come due, you can finance an invoice to receive most of its value in an up front payment. The financial institution accepting the invoice will then go on to collect payment from the customer, and issue the remaining funds, less their fee, when that payment is received. This allows businesses to quickly get access to additional cash when they need it, making it an excellent way to deal with cash flow interruption before they can impact operations. Moreover, it can be used to finance invoices as soon as they are issued, so that the majority of revenues are made available at the point of sale rather than whenever payment would otherwise be due. This way one can, for example, offer customers a 30 day payment term, while still receiving most of the outstanding funds immediately. Provided that the business takes no longer than 150 days to convert a supplier purchase into sales, then, the business can reduce its cash conversion cycle below zero, meaning that it will be paid for its products before it needs to pay for the inputs that created those products.
Fifo Capital’s trade finance and invoice finance can be used together to fully finance a business’ operations, and to manage cash flow interruptions. This gives manufacturers and wholesalers the control over their cash flow that they need, enabling them to grow, and protecting them from harmful interruptions that still jeopardise the success of so many businesses.
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Cash flow resolutions to get ready for growth in the new year Fifo Capital’s cash flow management tools help businesses to get their finances under control, and to grow.
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It’s easy to get distracted by the daily challenges of leading a business. Business owners and leaders are always faced with an endless to-do list, usually forced to prioritise the most immediate short-term threats. For all but the most disciplined, that inevitably means that long-term concerns like growth strategy are sidelined, eventually falling off their radar entirely. To get back on track, they need to improve cash flow management, strengthen their supply chain, and ensure their ability to access growth capital and investment. Our new year’s resolutions can help you get your cash flow under control and your business ready to grow in earnest. By using supply chain and invoice finance, businesses can eliminate many of their cash flow headaches, and pave the way for future growth.
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Make time by getting easier access to cash
The first thing every business owner needs is more time. After all, business owners don’t typically ignore growth on purpose. Instead, the many other urgent tasks that they’re responsible for just take more and more time and funding away from growth efforts, until they stall. The biggest of these time sinks is cash flow management. Sudden unexpected costs, lost clients, late payments, or a drop in revenues force leaders to spend much of their time organising and reshuffling budgets, prioritising outgoing payments, and chasing down late-paying clients. By improving their cash flow management, though, businesses can make themselves more efficient, freeing up more time to focus on growth. Fifo Capital’s invoice finance is one of the most important tools businesses need to do this. It allows them to get fast access to additional funds, often in as little as a few hours. This functionally allows them to shorten a customer’s payment term at will, getting paid early, often as soon as the invoice is issued, or whenever the funds are needed. Moreover, once an invoice is financed, the receiving financial institution will take payment from the customer, usually eliminating the need to chase the client for timely payment. With that fast and simple injection of cash, businesses can easily deal with most cash flow interruptionS, eliminating the need to reshuffle budgets or hunt for short term credit options.
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Pay suppliers on time, every time
In order to support its growth, every business needs a strong and stable supply chain that is able to accommodate that growth. New customers aren’t
very useful to someone who can’t get the resources to serve them. That’s a problem, because when cash flow is unstable, it can be virtually impossible to consistently pay suppliers on time. Using Fifo Capital’s supply chain finance, though, businesses can ensure that supplier payments are not only always on time, but that they can be made early when needed. Supply chain finance is a tool that businesses can use to extend their own payment terms, while still getting payment to their suppliers. Instead of relying on their own potentially unavailable funds, they work with Fifo Capital, who issues payment to the supplier on the business’ behalf when the supplier invoice is due. The business, for its part, only needs to pay the financial institution 90 days after the invoicing date. Best of all, if the supplier is dealing with a cash flow issue of their own, they can request early payment in exchange for a discount. That means that suppliers not only enjoy more consistent payment, they also gain an additional cash flow management tool of their own.
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Clean up your business’ balance sheet
While short term financing and cash flow management tools are excellent for seizing short term growth opportunities, funding a growth phase requires much more significant investment. That means qualifying for traditional business loans, and attracting investors. To do that, though, businesses need to maintain a clean balance sheet. Financing tools like invoice finance and supply chain finance can help businesses to do this, because they’re both types of off-balance sheet financing. That means that neither involve the business taking on any new assets or liabilities. Instead, existing assets such as unpaid invoices are simply converted to cash, or existing liabilities, such as accounts payable are kept the same while payment terms are extended. Both give the business access to financing without incurring any debts. This gives them an important advantage when it comes to attracting funding for larger growth efforts. A clean balance sheet allows them to signal their ability to meet financial obligations and their financial flexibility to investors and their primary lender. Fifo Capital’s cash flow management tools help businesses to get their finances under control, and to grow. By learning to strategically apply invoice finance and supply chain finance, business owners can free up more of their time for high-order concerns, strengthen their supply chain, and pave the way for better and more substantial growth investment.
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Animals spend massive amounts of energy consuming plants to make protein. We start directly with the plant material [pea protein] and build from that.
Ethan Brown:
making meat sustainable Ethan Brown spent his career hoping to do something about climate change. He began his career focusing on sustainable energy, but came to understand that stopping climate change meant finding a way to divert the world’s demand for meat. The meat industry is the single largest contributor to greenhouse gas emissions on the planet. Moreover, the industry is an incredible drain on land and water resources. It has already grown to unsustainable proportions without accounting for the world’s growing population and increasing demand for animal protein. Meatreplacement products already 9
existed, of course, but they were either unsatisfying in terms of quality, or unaffordable. Brown recognised this for the opportunity that it was, and decided to take on a market ripe for disruption. Today, Brown’s company, Beyond Meat, is one of the world’s fastestgrowing businesses. His products are sold in over 50 countries, and Brown himself has a net worth estimated at US$126 million. Moreover, his company has brought the world’s first realistic plantbased meat alternatives to market, realising his dream of building a more environmentally friendly food industry.
Early life and career Brown began his career as an energy analyst for the National Governor’s Center for Best Practices. After his stint there, he worked his way up in a hydrogen fuel cell company, Ballard Power Systems, where he stayed for 8 years. Brown’s priorities regarding both the environment, and animal welfare were clear from an early age. He grew up around livestock, and began to question the difference between the animals we eat, and those we keep as pets. As an adult, viewing the meat industry
from a resource and energy standpoint as well as a personal one, it was obvious to him that livestock was a global problem that needed to be solved.
Making activism palatable to the masses Brown knew—and frequently stresses—that it’s both wrong and ineffective to try to tell a customer what they should and shouldn’t eat. Rather, a business is best built by giving the customer exactly what they want, improving it and possibly, eventually, cheaper.
However, Brown didn’t accept that what we experience as meat has to come from animals. Meat contains amino acids, fats, trace minerals and water. All of these things can be found in plants, and there’s no reason to think that an animal can turn those things into meat more efficiently than we could. Knowing this, Brown founded Beyond Meat in 2009 to create a better meat, not just another unsatisfying meat substitute. Ten years later the company would be valued at US$3.8 billion on the day of its IPO.
Designing a better meat Originally, Brown considered getting involved in lab-grown meats, however discarded the idea because it didn’t appear to be commercially viable. Instead, he focused on using plant proteins to create products that delivered the look, feel, and taste of various meats. Processed into burger patties, chicken-less strips, and sausages, these were relatively easy to create compared to the taste and texture of a traditional steak. This allowed Brown to go to market relatively quickly, helping the still-small business to grow and to attract attention. In 2013, it was named Company of the Year by PETA, and 3 years later Tyson Foods, which controls much of the US meat industry, purchased a 5 per cent stake in the company. In 2018, Beyond Meat began to partner with restaurants, quickly leading it to offer its products internationally, and driving enormous growth. In just a year, the company went from $33 million in revenues in 2017, to $87.9 million in 2018. 2019’s revenue growth is expected to be even more dramatic, considering that the company earned $92 million in the third quarter alone.
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What we can learn Beyond Meat shows us how even highly optimised, low-margin industries like the meat industry can be disrupted. By being willing to rethink what meat is, and justifying that new perspective with convincing products, Brown has been able to build a plantbased meat empire. Ethan Brown launched his company based on his personal ideology, but also backed by economic forces. Demand for realistic meat-alternatives is high, even among many non-vegetarians. This allowed Brown to compete against the traditional meat industry for customers. Moreover, Beyond Meat’s products are plant-based, so they’re also much more efficient to make, allowing them to compete against much larger businesses that benefit from economies of scale.
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Compared to a similar amount of beef, a Beyond Meat burger generates 90 per cent less greenhouse gas emissions, requires 46 per cent less energy, and 93 per cent less land to produce while using less than one per cent of the water. This makes their products vastly more resource-efficient, and presents an opportunity to innovate and eventually reduce production costs. Brown gave customers what they wanted in an entirely new, unconventional – and much more efficient – way.
Trust Fifo Capital to sort your seasonal cash flows A standby working capital facility ready to access when you need it most. Simple preapproved facility sitting alongside existing finance arrangements. • Pay only if you use it • Fast and simple to activate • Peace of mind for unexpected cash flow interruptions • Small and large exposures • Treated on a case by case basis, and tailored to your needs
Contact Fifo Capital today for more information. 1300 852 556 fifocapital.com.au
Trust is central
to a collaborative and innovative company culture A company culture in which employees freely work together, exchange ideas, and experiment to refine and optimise those ideas is as rare as it is valuable. In order to innovate effectively, businesses need to harness the creativity and problem solving skills of the employees. Unfortunately, most businesses tacitly suppress collaboration and innovation among their coworkers. This makes it much more difficult and costly to develop ideas, to compete with other businesses, and to grow.
In order to change this, it’s important to understand what drives collaborative innovation, and how to motivate employees to share ideas and to develop innovative solutions to problems. Fundamentally, this means providing employees with common interests to pursue, and building trust between employees, and between employees and business leaders.
Collaboration is essential to innovation While popular media might lead us to think otherwise, innovative solutions today are rarely the work of any one individual. Major innovative entrepreneurs like Elon Musk or Steve Jobs became world-famous in part because of their deep technical knowledge and ability to innovate and develop their own products. Most businesses don’t work this way, though. Moreover, most industries have already been around long enough to develop effective best practices, and have little to gain from any individual’s expertise. At this point, they need complex solutions to complex problems. Business owners who attempt to make themselves the driving force behind innovation in such an industry will normally find themselves frustrated,
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Innovative company cultures are built on a foundation of trust. Trust, however, is built on common interests and mutual understanding.
and may even keep valuable ideas of employees from being heard. This is problematic, because innovatively disrupting an industry usually requires introducing new perspectives and outside knowledge to challenge established norms. That means aggregating the diverse experience, knowledge, and perspectives of many different employees to come up with and refine new ideas.
Mistrust prevents collaboration Employees traditionally see their coworkers as rivals, and employers often encourage this view. Competitiveness is an excellent motivator when it comes to individual performance, but it can come at the expense of innovation. That’s because competitiveness usually also has an unintended side effect. Employees who are competing directly for limited rewards, such as bonuses or promotions, can’t afford to be helpful to their coworkers. Sharing an idea, or giving someone else feedback on theirs, means risking their own success. As a result, employees are forced to attempt to perform as individuals, instead of pooling their resources and expertise to contribute to a greater collaborative effort.
Building trust to improve collaboration In order for employees to collaborate effectively, they first need to trust one another and their employer. This means reducing their incentives to compete against one another individually, recognising and rewarding their contributions as a group, and ensuring that their innovative efforts are taken seriously by their leaders.
Develop a broader reward structure While it doesn’t make sense to promote people in groups, everyone who contributes to an idea can be recognised or monetarily rewarded for it. For example, a business might challenge teams of employees to come up with improvements or innovative solutions to a problem. If a team’s solution is implemented, the entire team receives a bonus, rather than any one person. This preserves the motivating power of competition, while also strongly encouraging employees to work together to come up with an ideal solution.
Ensure that new ideas receive a fair hearing Many businesses, particularly startups, rely on a few initial key innovations made by the business’ leaders. While innovative
leadership is helpful, it’s important not to place too much value on ideas simply because of where they come from. In such an environment, employees who see problems may feel that their feedback is unwelcome, or that saying something could even be harmful to their career. To head this off, leaders need to actively solicit feedback, original ideas, and critical observations of their existing procedures and products. Additionally, people and teams who discover inefficiencies or help to resolve them should be rewarded and recognised for their efforts. This helps to communicate priorities to employees. Specifically, it ensures that honesty, collaboration, and innovation are prioritised over more mundane office politics. Innovative company cultures are built on a foundation of trust. Trust, however, is built on common interests and mutual understanding. By providing employees with common interests, business leaders can encourage employees to begin collaborating, and to build that all-important trust. It’s only at this point that business leaders and employees are able to freely share ideas, to provide honest and constructive feedback, and to finally realise their combined innovative potential.
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Get your business ready to make it
big in
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Businesses are complex organisations’ that rely on the seamless integration of many different parts to function. Managing cash flow, production, quality control, sales and marketing, taxes, payroll, and human resources is more than enough to occupy the time of any leadership team. Unfortunately, as a business begins to grow, their operations will only become more complex. This is an issue, because business leaders need to be able to focus outward and on the future. They need to be able to pay attention, and plan for what to do, with regard to their target markets, competitors, investors and innovative new ideas, if they want the business to compete and grow.
payment in exchange, before going to the customer to collect payment when the invoice is due. At this point, any remaining funds are issued, minus a predetermined fee.
Supply chain finance Rather than getting direct access to funds, supply chain finance allows businesses to work with their financial institution, which will pay suppliers on their behalf. The business will then pay the supplier payment to the financial institution at a later date, up to 90 days after the invoice was initially issued. Typically, this is designed to give the business time to use the purchased supplies to generate revenues needed to make payment. It can, of course, be used to make more time for any type of incoming revenues to arrive.
Getting the freedom to lead To lead effectively, business owners and managers need to prioritise the most important leadership tasks. Those priorities, however, are different for businesses of different sizes. Entrepreneurs and CEOs of SMEs often attempt to maintain direct oversight over all, or most of, their business’ operations. At some point, many of these will hit a point where further growth becomes difficult from an organisational standpoint. As they grow, business leaders are forced to spend more and more of their time simply keeping the business running, leaving no time for innovation and growth planning. In order to become larger businesses, they need to give themselves the freedom to keep leading the way forward. That means investing in tools and bureaucratic systems that make their operations easier to manage, and allow them to prevent potential problems. Doing this is the key to sustainable, long term growth for any large company, because it helps to provide leaders with time to focus on non-internal issues and the tools to develop and execute growth plans.
Better cash flow management Cash flow management is one of the earliest and most significant challenges growing businesses face. The larger a business is, the more payments need to be made to suppliers and collected from customers. Also, the potential costs of a cash flow interruption, in terms of lost productivity, tend to scale with the size of the business, meaning that avoiding any interruptions is crucial. Because of this, businesses need to be able to quickly access funds to deal with budget shortfalls, regardless of why they might be occurring.
Invoice finance This type of financing generates liquid capital by converting an existing non-liquid asset. Rather than waiting for payment, a business can exchange an unpaid invoice for a cash payment. The financial institution receiving the invoice will offer immediate
These tools are particularly useful because they don’t rely on debt. Instead, they allow businesses to fund themselves using their own assets. In both cases, they allow businesses to access funds quickly and easily, making more time for customers to make payment, and reducing the pressure to collect outstanding payments immediately just to keep the lights on.
Investing in technology As an organisation grows, it becomes much more difficult to maintain oversight. Because of this, they need to begin to build a bureaucracy, providing the business structure, and lifting some of the burden on leaders. When doing this, it’s a good idea to invest in enterprise resource planning software, which is used to aggregate and help leaders to manage financial, HR, manufacturing, and supply chain information. This helps to minimise miscommunication between departments, and allows them to work together more easily. Most importantly, it gives business leaders a much clearer picture of their operations, and allows them to better plan for the future.
Planning a better future Cash flow management tools, such as invoice and supply chain finance, as well as enterprise resource planning tools, simplify many of the tasks that business leaders manually deal with in smaller businesses, and allow them to be more easily delegated to others. Moreover, it helps businesses to anticipate problems, and to take preventive measures to avoid situations that would otherwise require intensive and disruptive action to manage. As a result, leaders spend less time reacting to problems, and can focus more of their energy on the success of the business going forward.
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We live in a digital world, where data can help us make more informed decisions about what to buy, when, how to navigate traffic, who to connect with, and how to be productive.
Jun Wang:
reinventing healthcare with the “Digital We” Sequencing the human genome, as well as that of various viruses, bacteria, and other lifeforms, has had an enormous impact on our lives. It’s allowed us to create new medicines, to improve the foods we eat, and to inform us about our own genetic history. One of the world’s most prolific geneticists involved in these efforts over the past two decades isn’t satisfied, however. Dr. Jun Wang sees potential for much more. His dream is to combine genomics with data science to elevate healthcare to an entirely different level. 17
Wang founded iCarbonX in 2015 to combine big data with genetics to develop artificial intelligence that will allow us to optimise the health and quality of life of the individual. Since its founding, the company has attracted over $600 million in investments, and is currently valued at over $1 billion, making it one of only 3 unicorn startups in China.
Early career Wang is no stranger to high-profile projects. In 1999, he co-founded the Beijing Genomics Institute (BGI) to join Human Genome Project as China’s representative, and led it as CEO until 2015. The project was completed in 2003, with BGI sequencing approximately 1 per cent of the genome. Since then, BGI has become the world’s largest genetics research center, conducting research into cancer and other diseases, as well as viruses and bacteria. Besides this, they’ve also sequenced the genomes of a wide variety of plants, specifically food crops, and animals, including the giant panda, silkworms, and honey bees. BGI has applied this data over the past decades to provide commercial science, health, agricultural, and informatics services to pharmaceutical companies. Wang, however, saw greater opportunities in his findings. Genes are expressed differently depending on how a person eats or behaves, and on what kinds of environmental factors they are exposed to. In order to create truly personalised medicine, more than just genes need to be taken into account.
about the potential applications of genetic data. By combining information about our genetics with detailed data about our environment and our lifestyle, healthcare to create a “digital me”, healthcare could become far more personalised than it is today. More importantly, data from many individuals could be analysed to create a larger “internet of life”, or a “digital we”. With this, it would become possible to statistically predict the health outcomes of various lifestyle choices for individuals in advance based on their genes. Moreover, it would become possible to understand exactly why a particular individual was experiencing a health problem, and what specific treatments or lifestyle changes would help. The problem with this was the sheer amount of data mining and analysis involved. A “digital me” would need to know much more than just a person’s genome. It would also need data about the proteins, genes, metabolites, and antibodies in and on the individual, as well as information about their diet, lifestyle, and environment. Then, all of these data points would need to be analysed to
ago. However, citing the dramatic reduction in the cost of gene sequencing, Wang claims that the cost of a “digital me” could be brought down to as little as $100 within “3 to 5 years”.
Leaning on the authority of expertise Claiming that a product will become affordable in the future is not typically an ideal pitch to investors. Wang, however, has been a leading voice in genomics for decades, and has the personal authority to support his ambitious claims. To make iCarbonX a reality, he recruited a network of other AI and health technology companies into his “Digital Life Alliance”, drastically increasing the resources and expertise available to advance the project. The result has been overwhelming optimism. In total, the project has received $1 billion in investments, and received a great deal of international attention. In 2017, the company began providing immune profiling in China, Singapore, and Taiwan. A year later, they partnered with DaChan Food to begin providing personalised precision nutrition to customers.
What we can learn
Combining big data and genetics
create a greater, marvellously complex picture of the individual.
According to Wang, the idea of creating digital models of people came from his experience as a student, where he created a digital model of a ladybug that could predict its behaviour. This preceded his scientific career, but would later inform his attitude
Turning an idea into a unicorn The idea of cost-effectively collecting and analysing the vast amount and variety of data needed to produce an accurate “digital me” was unrealistic just a decade
Looking at Wang’s path to success, we can see that he built on his prior authority as a leading scientist in his field to expand into other industries, namely information technology and artificial intelligence. This allowed him to gain the support of other experts in those fields, making what would otherwise have been a long shot project into a wildly promising startup.
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Stabilise cash flow to access growth capital in a turbulent global economy
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Despite an ongoing trade war, and other occasionally troubling indicators in the global economy, Australia and New Zealand have maintained growth in their economies in 2019. Today, though, businesses rely on the global economy to facilitate their growth – simply ignoring global economic developments is not an option. This is highlighted by the World Bank’s stark warning on 20 December 2019 that financial markets may face another global crisis. Businesses need to be aware of, and manage the risks that their national and global economy faces while pursuing their own success. Businesses need growth solutions to help them manage economic insecurity on both a local and a global scale. The recent housing crisis in Australia, and the threat of a repeat performance in New Zealand, for example, are showing business owners that they need more flexibility when it comes to financing their operations. At the same time, businesses need to find innovative solutions to manage falling consumer spending, as retail spending in particular has slumped to its lowest level in 28 years. That requires businesses to compete more fiercely, investing in the development of new and more innovative growth strategies. The same pressures that drive this kind of competition, though, are making investors and lenders more cautious. To get the funding they need, businesses need cleaner balance sheets, and more stable finances than they did when the global economy was roaring.
Global factors are undermining growth down under The World Bank recently issued a warning regarding the rapid and massive growth of debt in the global economy, particularly in
developing countries. As of the end of 2018, the IMF reports that global debt had reached $188 trillion USD, worth nearly 230 percent of global GDP. The World Bank’s report states that this ongoing trend could culminate in a major global financial crisis—especially if interest rates were to rise, or any kind of economic shock pushed creditors to action. This news, emerging in the midst of ongoing trade tensions between the US and China, and rising debt in both economies, is enough to inspire caution among investors and businesses alike. While it has certainly slowed growth, though, Australia still achieved recordbreaking commodity export figures in 2019. This highlights that growth is still achievable and worth pursuing, even when the road to success is, in some ways, more rocky than usual.
Investing in innovative growth A lack of growth in consumer spending, exacerbated by slow wage growth in Australia, means that many businesses can’t rely on simple economic growth to provide the demand they need to expand. Instead, they need to develop specific strategies to capture customers from competitors, or to break into new markets to facilitate their growth. That means investing in research, innovative marketing strategies, and product development. This, however, often requires larger investments, and more complex growth strategies. Borrowing to finance those
strategies can leave a business overextended if the economy takes a turn for the worse. To avoid that, businesses need to be able to manage their cash flow to adjust to changing conditions. Specifically, they need to be able to access additional funds on short notice without jeopardising their future borrowing potential or worrying investors. That means adding off-balance sheet financing to your business’ toolbox.
Use off-balance sheet financing to protect cash flow and make quick investments Off-balance sheet financing is an indispensable way to get access to cash quickly when it’s needed most. Supply chain finance, for example, allows businesses to defer payment for supplier purchases by up to 90 days. Instead of making payment right away, the business’ financial institution pays the supplier, and collects the funds from the business later. This allows the business to quickly free up working capital to boost production, or pursue another short term growth opportunity. Similarly, invoice finance allows businesses to exchange an unpaid invoice for cash up front. The financial institution receiving the invoice will pay out most of the invoice’s value immediately, issuing the remainder when the customer pays the invoice. This gives the business an injection of cash right when they need it, without actually borrowing any money.
Off-balance sheet financing solutions like invoice finance and supply chain finance are critically important tools for businesses, because they provide financial flexibility while keeping their balance sheet clean. Businesses can then leverage that balance sheet to better attract investors, and to more easily qualify for future loans from their primary lender. In this way, businesses can keep their growth efforts funded, while insulating themselves against sudden cash flow interruptions brought on by economic changes.
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Create conditions in which your business will operate tomorrow While it’s primarily used to refer to the impact that businesses have on the natural environment, sustainability can also be viewed as a much broader guiding principle to doing business.
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While many businesses aim to deal with short term problems, or seek short term profit, a sustainable one takes short term benefits as well as its ongoing growth in the long term into account. In effect, sustainability in business is about creating the conditions in which a company will operate in the future. This means approaching everything, from recruitment, to cash flow management, to environmental impacts strategically, understanding that every step should prepare the way for the future. The pursuit of sustainability as a guiding principle gives businesses the context needed to develop strategies to competitively provide for their customers—and ensure their own success—indefinitely. While it’s generally helpful to think ahead, a focus on sustainability is particularly relevant in situations where businesses expect to operate in adverse conditions, such as during an economic downturn.
Sustainability is key to heading off future challenges In many ways, sustainable business practices in general are reflected in how businesses approach environmental sustainability. For example, forward thinking businesses all over the world are increasingly switching to renewable sources of energy such as wind, solar, and hydropower. Some even generate their own renewable energy. In the near term, this typically represents a large investment, though the total energy costs are often reduced. In the long term, though, it provides businesses with a major advantage. Once a manufacturer is producing their own renewable energy, their energy costs become extremely predictable. Competitors, on the other hand, remain at the mercy of constantly shifting prices as price fixing, global politics, and markets exert their influence. In the same way, businesses who embrace sustainable hiring practices and
sustainable cash flow management can insulate themselves against future difficulties.
Sustainable talent management In order to recruit and retain talent sustainably, businesses need robust onboarding practices, a healthy company culture, and excellent communication between business leaders and employees. This requires businesses to invest a lot of attention and resources up front, but it’s an investment that begins to pay for itself almost immediately. Sustainable talent management allows employers to hold on to and make use of skilled talent longer. Critically, it also makes those businesses more attractive to potential candidates, and helps them to more easily recruit the highly skilled workers they need to grow in the future.
Sustainable cash flow management Business leaders spend a large portion of their time battling short term cash flow interruptions. Lacking other clear options, many opt to shift funds from one budget to another, often causing cash flow issues elsewhere at a later date. A sustainable approach to cash flow management is one that offers both short and long term solutions. For example, invoice finance and supply chain finance allow businesses to systematically address the root problem. A business can simply finance an invoice to get access to their funds earlier than the payment is due. This effectively overcomes longer payment terms. A business looking to fund a quick growth opportunity, on the other hand, can use supply chain finance to finance the project, before using the funds generated by that same project to pay for it. In both cases, businesses reach for a sustainable source of funds, avoiding the unstable cycle of starving one project to keep another going.
Sustainability boosts morale Sustainability provides stability, making employees, consumers, and business partners feel more secure. Consumers increasingly prefer businesses who embrace environmental sustainability, viewing such businesses as being of higher quality, and being more ethical than less sustainable competitors. Lenders and investors, for their part, prefer financially sustainable businesses with clean balance sheets, who can be relied upon to manage money responsibly, and to produce reliable returns. Employees see more, and are more affected by the sustainability of their employer than anyone else. They want to work within a culture that values them, and allows them to perform to their full potential. First, this means sustainable talent management, which helps employees feel appreciated, but it’s also about sustainable financing. Nobody wants to pour their best efforts into a project for months, only to see it cancelled due to budgeting constraints. Of course, sustainable environmental policies also play a role—after all, employees are also consumers.
Using the concept of sustainability as a guiding principle allows businesses to take control of their environment, from their financial circumstances, to the labour market, to the literal natural environment.
By recognising the value this offers in terms of mitigating the effects of changing economic conditions, skill shortages, and changes in access to financing, businesses can begin to use sustainable business practices to make themselves more competitive and more successful.
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Boosting growth safely with short term financing Short term financing tools, such as invoice finance and supply chain finance, are an excellent way to improve cash flow management and reduce the impact of cash flow interruption. However, they’re also useful as a way to generate temporary capital to drive short term growth, or to free up capital in the long term for more significant investments.
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Driving growth in this way comes with its own risks, however, and needs to be approached with care. Off-balance sheet financing is, in effect, a way for businesses to finance their own growth, without relying on loans or outside investors. Understanding the limits and risks of this type of financing allows them to use it safely and quickly to finance short term growth that would otherwise be unobtainable. That means considering how to best leverage alternative financing tools, and what type of investments will best serve to drive growth without exposing the business to undue financial risk.
Finance investments with quick returns Unlike traditional loans or investor funds, invoice and supply chain finance only provide additional funds for a limited amount of time. Supply chain finance, for example, can be used to extend payment terms by up to 90 days, while invoice finance simply brings already-earned income in sooner.
By using these tools, businesses can give themselves more time with cash that already belonged to their business, rather than actually gaining new assets. They can’t, however, afford to lose those funds. Instead, any investments need to be recovered relatively quickly, so the funds can be reinvested in the business. For example, a business might decide to use invoice finance to collect an incoming payment 60 days early. In 60 days, those funds are meant to cover payroll expenses. By collecting the payment early, though, the business now has the intervening time to attempt to generate a profit. However, it needs to be sure that any investments made pay off before its own outgoing payments are due. This means that the business needs to focus on clearly defined short term investments.
Focus on generating predictable returns Besides keeping investments contained in terms of their time frame, businesses also need to ensure that returns are predictable. Funds that need to be recovered in time for a specific payment can’t be risked for projects that may not produce returns reliably. Search engine optimisation (SEO) projects, for example, can produce a great deal of value quickly, or they can take years to generate any quantifiable returns. This depends on a wide range of factors, many of which are unpredictable. Because of this, businesses should only invest funds in this type of project if they’re also prepared to lose
them for the foreseeable future. Instead, short-term funds should be invested predictably. That might mean, for example, using them to offer sales commissions or to pay past and current customers to refer new clients. In both cases, any money spent directly corresponds to a return, so that the capital being invested can’t simply be lost if the project is unsuccessful. Rather, the funds wouldn’t be spent in the first place.
Fully financing production to free up funds in the long term Often, a business can combine invoice and supply chain finance to free up their current working capital for longer-term investments as well. However, that requires using these tools to fully finance their production process. This is done by eliminating the cash conversion cycle. The cash conversion cycle is the amount of time it takes a business to convert an investment into profitable revenues. Specifically, it’s the time a business waits after paying for its inputs, until it receives payment for the products or services that those inputs were used to create. If the business can arrange it so that its payments are due only after the corresponding revenues are collected, the cash conversion cycle is below zero. In this case, the business doesn’t need to invest any of their own capital, because they can pay suppliers with the revenues that those same supplies eventually generate.
Supply chain finance can be used to do this together with invoice finance. Instead of paying suppliers directly, businesses can instead extend their payment terms to up to 90 days by working with a financial institution that will, in the meantime, extend payment on their behalf. This ensures that the payment due date for the inputs is as late as possible. Then, once a product is sold, invoice finance can be used to collect revenues immediately, often allowing the business to collect them before the inputs need to be paid for.
At this point, the capital that the business was previously using to purchase inputs for production can be invested elsewhere. Moreover, because the production process can then be fully financed going forward, investments made with that capital can be longer term in nature. In this way, alternative financing provides businesses with multiple ways to get funding for different types of investments. Knowing how they work is the key to using them effectively to grow your business, and helping it to compete.
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When expertise counts Not all business finance needs can be solved with vanilla solutions. When an expert sounding-board is needed, Fifo Capital can help: • One-on-one consultancy (complimentary) with a business finance specialist • Fast response and approval of finance (24 hours) to meet changing business needs • Consultancy in partnership with your financial advisers and with banking facilities • Solution-solvers for short term needs, and long term sustainability. When your business finance needs demand expert thinking and purpose-fit solutions, call Fifo Capital on 1300 852 556
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