THE destruction of wealth wrought by the global financial crisis has focused many private business people back to their core operation, and given them cause to think about strategies for preserving what they have in case of another big bust.
THE destruction of wealth wrought by the global financial crisis has focused many private business people back to their core operation, and given them cause to think about strategies for preserving what they have in case of another big bust.
For some insight to this issue, WA Business News asked some of the state’s leading entrepreneurs to provide insight from their experience in the boom-and-bust cycle of Western Australia.
Convening to determine WA’s master entrepreneur for the Ernst & Young Entrepreneur of the Year Awards, Harold Clough, Gordon Martin, Patricia Kailis, Jack Bendat and Fred Rae spoke at length about how they had preserved wealth through decades of business cycles.
And while it’s difficult to distil their views into an easy guide to protecting their businesses, and therefore assets, there were several common themes across the group.
These could be summarised as: retaining good people; having assets with good cash-flow that can be sold at short notice; knowing when enough is enough; keeping debt constrained; being ethical; focusing on the core business; and diversifying in a way that doesn’t risk what has been achieved already.
Of these, it emerged during the discussion that having the right people involved in the business was a significant element to wealth preservation, with the business’s job to keep them motivated and excited about being part of the enterprise.
Key people are those who keep the businesses running in the tough times, and help to bridge the knowledge gap as succession takes place.
“One of the strengths has been keeping long-term staff,” said Patricia Kailis, who founded MG Kailis, with her husband, Michael.
“Many of them are in key spots after 20 or 30 years.”
Mrs Kailis said sticking to a core business was important in wealth preservation but acknowledged that she and her late husband would be unlikely to choose fishing if they were young entrepreneurs looking for a start today.
The retention of key staff was a point that Mr Clough, who grew diversified engineering company Clough into a major WA force, also took on board.
“It revolves around people; you have to have good people. It’s not the assets you have or the plant or anything else,” he said.
“And you have to have them onside; if you have a team that’s offside it will not last a year.”
Mr Clough added that it was vital to have people who would tell the truth about what was happening in the business.
While there was general agreement on this point, another key element to wealth preservation was structuring a business that was not overcommitted in any dangerous facet, and had an inbuilt buffer to help it withstand the shock of economic crisis as has just been experienced.
“I am slightly more conservative as a result of the GFC,” said Mr Martin, executive chairman of Coogee Chemicals.
“The whole way through we have had what I call a fallback strategy – arms you could cut off or legs you get by without, where you’ve got sustainable cash-flow that you know someone wants and it’s a sort of incremental growth thing.
“That’s been a fundamental strategy right through.
“There’s always been an understanding that if it all went to pieces you’d be able to sort of grab some money from things that had long-term value.
“We probably have four or five things that, if the crunch came, we have ready buyers for them. That has value in terms of peace of mind, if nothing else.
“I am not sure how some of the entrepreneurs of today in the high-tech world really do that.”
Mr Clough agreed, believing that even during the good times, significant effort must be put into preparing an organisation for leaner periods.
“What we have to tell our young entrepreneurs is you have to pay the highest attention as to how to survive in that situation,” Mr Clough said.
“Always carry a spare tyre.
“Don’t over-borrow, have a safety net somewhere in your system, a slush fund you can call on when the crunch comes.”
Gull Petroleum founder Fred Rae had a similar approach, based around property.
“We have purchased properties that have nothing to do with our core business,” Mr Rae said.
“They are income earners, and if some tragedy befell our fuel business it would not be a problem.”
Mr Rae also mentioned the importance of having the right people associated the business.
In part, he said, retaining the right people was about having an ethical stance, just as it was with clients and suppliers.
“There are no doubts,” Mr Rae said. “We have done so many deals on a handshake.
“Ethics has been a major thing ... and diversifying outside the mainstream.”
Mr Bendat, who started out developing shopping centres and has since been heavily involved in the media and wine sectors, said young entrepreneurs had to develop patience.
“Don’t run if you can’t walk,” he said.
“Young people don’t have the patience, they are here to make it as quickly as they can.
“You also have to know when you have enough.’’
