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Fall 2008 |
Obtaining financing when
credit markets are tapped.
A word from our CEO
MNP’s New
Nationwide Vision
This 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.
Daryl Ritchie, FCA
CEO, Meyers Norris Penny
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 issue
Published by:
Meyers Norris Penny LLP
Features
300, 622 5th Avenue SW
Wood Visions crafts a new vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
P: 1.877.500.0792
When is a bonus not a bonus? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Managing Editor
The money factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Debra Beck
Credit crunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Calgary, AB T2P 0M6
[email protected]
250.863.5968
Change for the better . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Framework for owner-managed enterprises (FOME) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Articles in this publication are
Project prioritization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
position, nor should they be
neither official statements of
considered technical advice for
Regulars
individuals or organizations without
consulting an advisor.
A word from our CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
mnp.ca
2 MPACT > Fall 2008
MNP Expands
into Eastern Canada
Clients’ business needs major reason for move east .
Toronto
★
T
he evolution of mNP into a
national firm is good news for
Canadian business owners. on
the heels of the former western-Canadian
based firm’s announcement it planned to
go national, it took its first steps in realizing
its new vision by merging with Toronto’s
Horwath orenstein LLP. mNP is now
operating in Canada’s largest financial 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 firm’s original
strategic plan but mNP was quick to adapt
when it became evident it was where the
firm 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 officer. “They need
to have instant access to assistance from
advisors and professionals who understand
local conditions across Canada. As a firm we
wanted to strengthen our national position
and entering the Toronto market was the first
step in achieving that.”
mNP has built its reputation on the local
knowledge of its professionals; since 1945, the
firm 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 firm. one of Toronto’s largest
mid-market accounting firms, 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 officer, 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 firm has
long offered advice, ideas and skills as
well as financial 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 firm 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
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.
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 specifications.”
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.
4 MPACT > Fall 2008
Over the years, Dale occasionally met
up with Medicine Hat MNP chartered
accountant Matthew May, for a round
of golf. Dale used another firm 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 finding 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 timecrunched 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.
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 difficult 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 refinishing services should be
removed from the company’s service
line, allowing Wood Visions to focus on
its most profitable services.
Monthly staff meetings have also been
initiated. While the first 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.”
When is a bonus
When it costs you money.
Keeping up with changing tax rules.
U
ntil 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
6 MPACT > Fall 2008
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
not a bonus?
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
inflated 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 benefits such as the GST
credit or child tax benefit 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 office .
7
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To assess wheth
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Ca
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process:
following review
days when you
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,
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d make sure th
ul
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are fa ci ng
and people wou
or ga ni za ti on s
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anymore,”
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at ’s not the case
Th
s,
th
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every few mon
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sa
same position
by.
etly
Catherine Gam
employees secr
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Le
or dealing with
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evaluating opti
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hat compensat
and
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to remain
If you’re stru
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e.
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to
keep top talent
in order for you
mpetitive and
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Co
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In its 2008
d keep your top
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, Th
Outlook Report
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include more va
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.
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and stock option
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Th e hi gh ly co
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large and small.
en vi ro nm en t an
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rd
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it
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sh or ta ge s do
ration coming
le . Bu t ch al ki ng
“The next gene
fi nd go od pe op
s
m
le
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wants to be
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the workforce
to
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do es n’ t so lv e
arded for doing
w
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up to ba d lu ck
variable pay
rs w ho w an t to
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ys
sa
pr ob le m . O w ne
sirable and is
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th ei r co m pe ns
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pa ck ag es an d
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ap pr op ri at e to
th e of fe r is st ill
A
8 MPACT > Fall 2008
TTOM
geT TO The BO
OF Issues
as
only as successful
Your business is
re
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the people worki
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ee
unhappy employ
high turnover or
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action and retent
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.
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Instead, get to th
out if your
How do you find
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compensation pa
fastest way is to
Sometimes, the
t
ees outright. Bu
ask your employ
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us
sc
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that such
Catherine warns
d with care.
must be handle
ther
R discussion, whe
“In any type of H
at or a formal
it’s an informal ch
have
ction survey, you
employee satisfa
e
you don’t raise th
to be careful that
en
employees and th
expectations of
.
ns
ai
liver,” she expl
not be able to de
sion
sition your discus
The key is to po
ain
exploratory. Expl
and questions as
ns
hear staff concer
that you want to
ering
mitted to discov
and you’re com
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oblems but aren
the causes of pr
take.
the solution will
sure what form
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your compensat
If you determine
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of a turn-off than
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talent magnet, it’
and
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hard look at wha
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in the marketpla
how it stacks up
to perform a
Your first step is
fine the roles of
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built that foun
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Job descriptions
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be different if yo
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on than thos
executive positi
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Catherine.
position,” says
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The Wave of th
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9
Obtaining financing when credit markets are tapped .
I
f you think the subprime mortgage
fiasco 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
significant 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
financial 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 significant 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 financing. Companies have to
show more information and businesses in
some sectors are finding it difficult to get a
bank to look at their projects.
In fall 2007, Tamarack Capital’s VicePresident and Director in Calgary, Doug
Bedard, had a list of 35 financial institutions
to approach about financing 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 financing requirements.
Mezzanine financing 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
flow. 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 flow (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 finance,”
he explains. If the company has proven
surplus cashflow, 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 financing
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 financed. Again, it’s
a more expensive form of financing, but the
additional costs may be worth the expenditure,
particularly for businesses growing at a rapid
rate or with limited fixed assets.
COsT Versus OPPOrTunITY
Should you explore more expensive forms
of financing? 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
financing. “Today, subdebt and assetbased 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 .
CHANGE Better
for the
How to successfully navigate changes in your organization.
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
specific 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
office, 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 five key steps to managing your
next change:
1 . have a vision . “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.
project management workshop
during their work with Mackenzie,
acquiring skills and techniques they
continue to use to this day.
2 . let the problem define the solution .
“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.
4 . Identify stakeholders early . 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.
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 significant
strategic change. “Mackenzie’s
perspective on our issues was quite
important to us,” Karina explains.
3 . Devote the required resources . 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
A stakeholder analysis will determine
the internal and external stakeholders,
which may change for different phases
of long-term change projects.
5 . Document your plan . 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 office .
FOR OWNER-MANAGED ENTERPRISES (FOME)
New accounting standards may still take a one-size-fits-all approach.
A
new accounting framework
intended to simplify financial
reporting for very small
private enterprises may not become
generally accepted accounting after all.
“The existing
CICA Handbook
will apply until a
new standard is
in place.”
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
12 MPACT > Fall 2008
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,
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 NonPublicly Accountable Enterprises,
established by the AcSB to look at
the issue and develop a possible
solution. The project is being fasttracked; 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 office .
13
How to decide what to do first in your business.
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 first. 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 benefits of
improvement as quickly as possible.
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
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 longterm action plans, providing you with a
road map to guide your change efforts.
How to decide what to do first in your
business.
The entire diagnostic process takes
“Through a business diagnostic, you may
discover seven things you should address,”
says mark Brown, director Business
Consulting Services, meyers Norris Penny.
“If the first item is going to be very difficult
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 figure out what
projects have the highest potential for
significant return, then address those in
order of importance,” says mark.
14 MPACT > Fall 2008
Findings can be surprising. “You may find,
for example, that the one customer that
gives you 50 per cent of your business is
responsible for only 20 per cent of your
profits,” 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.
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.”
ess You?
n
i
s
n Bus Help gnostics
a
C
Howgnostic business diaife cycle.
l
use
Dia
er,
ness
ev
s can the busi
, h o w e s h a ve
anie
y
f
p
r
o
a
m
v
ag
ge
ill
Co
nt st
y sta ok at w
e
hey
r
r
e
e
v
f
ow t
lo
dif
l
h
in e
l
t
’
t
a
u
a
t yo
sses
look
Wha e busine
e’s a
r
e
s
H
u
ds.
beca
t nee
n
e
r
e
diff
ou:
elp y
h
n
ca
Increasingly, bu
siness owners
are realizing th
of starting off
e importance
on the right fo
ot.
“The needs ar
e more obvio
us, so the dia
complicated,”
gnosis is less
notes Mark. “T
he goal is sim
everything w
ply to get
orking right th
e first time an
overall perfo
d
improve
rmance, thus
reducing the
of failure.”
chance
If you’re just
starting out,
business diagn
can help you
ostics
:
business pla
n
Identify you
Identify and
If growth has slowed or stopped altogether, diagnostics
can help you determine why and identify the chang
es
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
Start-ups
Organize a
Mature businesses
r financing n
design effici
eeds and op
portunities
ent business
rprises
nte
Growing e
processes
xtremely
, it’s also e
le
b
ra
si
e
d
s
y,”
th is alway
bankruptc
While grow
n grow to
e
ft
o
n
a
c
g. “You
challengin
s.
s
Mark warn
diagnostic
, business
th
w
ro
g
f
o
ods
During peri
help with:
ce growth
ow to finan
fl
sh
a
c
g
n
Structuri
mand
up with de
p
e
e
k
to
y
g capacit
Increasin
izational
iled organ
ta
e
d
re
o
am
Creating
structure
iency
timal effic
p
o
r
fo
s
e
process
Adjusting
provide a
nology to
h
c
te
n
o
ti
a
ng inform
Structuri
ation
fo
el of in rm
higher lev
Identify and analyze potential markets, such as
new geographical markets or customer groups
Challenged b
usinesses
Older busines
ses with agin
g product lin
sales need to
es experienci
make change
ng declining
s
sooner rather
there are cash
than later. O
flow problem
ften
s; working ca
obsolete or ex
pital may be
cess inventory
ti
ed
up in
, or there may
the ability to
be issues surr
collect from
ounding
some custom
ers.
In these case
s, business dia
gnostics are
useful for:
Identifying
ways to imp
rove operatio
nal efficiency
Analyzing m
arket and pro
duct opport
unities
Developing
new ways to
attract and re
tain employe
Structuring
es
cash flow
Developing
and managin
g new techn
ology
For more in
formation o
n how a busi
help, call M
ness diagno
ark Brown, D
stic can
irector Busi
Services at
ness Consult
1.877 .500.0
ing
792 or your
local MNP o
ffice.
15
WE’RE NOT JUST SHARING COFFEE,
WE’RE SHARING IDEAS.
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.
Chartered Accountants and Business Advisors
1.877.500.0792
mnp.ca
Finding the
right answer
starts here.
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.
Printed in Canada with canola ink, on
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PuBLICATIoN AGrEEmENT NumBEr: 41194046
Postmaster, if undeliverable, please return with forwarding address noted to: meyers Norris Penny LLP, #800, 700 - 6th Ave Sw Calgary, AB T2P 0T8