Vision is the art of seeing what is invisible to others

Jonathan Swift

When I was a kid in primary school, they made us read the book A Fortunate Life by A.B. Facey. If you've read the book, you'll know that life wasn't that fortunate for little Bert at all. But the moral of that book really stuck with me. Despite his desperately poor and violent upbringing, Bert genuinely believed that his life was fortunate; that the slings and arrows of misfortune that came his way were opportunities to be harnessed; and that happiness was not to be equated with pleasure or ease. I love that he managed to find great motivation from the difficulties in his life and I've taken inspiration from his story ever since.

I won't ever pretend that my life has been as hard as Bert's. It's been far from it. I've been quite blessed. I was born into a middle-class family in the leafy northern suburbs of Sydney and was very fortunate to grow up in an environment that valued education, endeavour and entrepreneurship. It's those beginnings that gave me the fire to launch my own company.

I remember being all of 10 years old and thinking, ‘I want to own my own company!' Seriously, what kid of 10 thinks that? But I did. I saw my dad, in his nice suit and his shiny shoes, trundle off to work and I thought, like most boys of an impressionable age, ‘I want to be like him'. I also remember him coming down the hallway with a cheque in his hand and his eyes shining, telling me he'd received it because of an investment he'd made that had turned out very well. I thought making money must be fun because he sure looked happy about receiving that cheque.

It's no secret that we disagreed on a lot of things, but like many fathers and sons who work together, we argued and then made up, argued again, made up, and so on. It wasn't an easy relationship, but we made it work and the sparks that flew helped us build a better business together.

My dad had his own successful accountancy practice, but he invested in pubs and was keenly interested in how they worked. He kept a tight rein on the finances of them, which is how I learned the tricks of the trade. I've learned some important lessons from my dad. Don't screw with people's money and pay people on time are two of them. When people don't get paid, they get very pissed off, and with good reason, so I've always made it my priority to ensure that people — staff, suppliers, investors — get paid on time.

How to get a better valuation

Unlike Dad, I actually worked in the pubs, not on them, and being the front man was what I enjoyed. We owned a pub together and we clashed regularly on how it should be run, but we always managed to work it out in the end and come out ahead. He wasn't that great with people and could often rub them up the wrong way.

One of the principles on which we disagreed was how money got spent. He never wanted to spend a thing on anything. I, however, believed you had to spend on something to get a result. For example, in 2013 we bought a pub in New South Wales called The CBD. I said to him at the outset, ‘We need to spend $500 000 minimum on this to bring it up to speed'. The carpet was fraying, the chairs were broken, the paint was peeling.

‘Why waste money on that?' he said. ‘People are coming in, drinking, spending. Why reduce your profitability spending on stuff that people won't notice?'

‘But they will Dad,' I would say. ‘They will.' But he wouldn't have a bar of it, so we didn't spend the money.

Twelve months later, the customer numbers were way down, the profitability was shot and the place was on the brink of ruin.

I said to him, ‘Can we start investing now? Can we start bringing this place back to what it was, and could be?'

He finally agreed.

I went to work. I did what I always did  —  which sounds easy but is pretty damn difficult to do in reality, especially on a tight time frame and even tighter budget — and that's to renovate. It was a very big pub — 1000 square metres on a 2000-square-metre block — which made it even more challenging.

We moved the gaming room, upgraded the signage, laid new carpet, painted the walls, created a new menu, staged new events, launched new promotions, sent out media kits … and within a few months the place was pumping. At our open day, we sold 2600 schnitzels in one day! We won a fantastic commendation from the Australian Hotels Association and got extra media coverage for that, which in turn generated new customers for us, and so the virtuous cycle continued.

The profitability improved quickly and we could finally see the pub had turned the corner and was on the up. It was thrilling to see and incredibly gratifying to know the strategy and hard work had paid off.

That renovation paid off in more ways than one.

When I went to the bank to get the pub revalued, they could see that the disruption to trade had impacted our sales figures, but they could see what we were trying to do and didn't penalise us for this drop in trade. I presented them with the ‘before and after' photos, the award we'd won, the increase in profitability and also a document outlining my track record of what I'd done with other pubs. All that combined served to create a vote of confidence from them and they not only approved the loan we asked for, but revalued the pub dramatically. The developers were interested too in what we'd done and could see the potential that we had made possible. My younger sister, who worked with Stockland at the time, introduced us to a developer she knew. You can imagine our delight when they made us an offer we couldn't refuse. We bought the pub for $3.6 million in 2013 and, in 2015, we sold it to a consortium of developers for $6.25 million. Not bad for a few years' work. That's the power of reinvention.

Profit versus potential

My dad inadvertently taught me an invaluable lesson here. He taught me that you have to look at a business situation from many perspectives and try to see everyone's point of view. He was looking at it from one point of view: profitability. I was looking at it from another point of view: potential. This is the difference between an accountant and an entrepreneur. An accountant sees what is; an entrepreneur sees what could be. Both are important.

When I sell any pub now, I work hard to see it from multiple perspectives, particularly that of the property developer. They ask, ‘Is it located on a high street or busy corner with plenty of pedestrian foot traffic?' ‘Is it located close to a shopping centre with plenty of passing cars?' ‘Are there sporting grounds, schools and office blocks nearby that will provide a steady source of trade during the day and night, on weekdays and weekends?' ‘What competition is in the area?' ‘What is the zoning regulation, and could the property be converted into a combination of residential and commercial elements?'

You must reinvest in your business

A business is like a tree. It needs to be watered, trimmed and fertilised. You need to spend money on it, plant it in the best position and ensure the soil is rich in nutrients so that it has the best opportunity to grow. A business is the same. You need to spend money on repairs, maintenance, upgrading equipment, reviewing the business model, changing the offering, keeping in touch with new and innovative elements — from the food and drinks you serve, to the technology you use to process orders or manage COVID-19 restrictions — you need to keep on top of everything.

It's easy to get left behind and not even know it. It's also easy to wallow in your own mediocrity without even realising it. Sometimes you need an outside eye to tell you what you're not seeing. When was the last time you asked an outside observer to assess your business? Have you ever invited your customers to be candid with you about what they think of your logo, website, customer service, premises, signage, staff? Their response could be illuminating, and not in a good way.

There's only one way to find out what customers and prospects think about you, and that's to ask.

The best way to see a business from multiple points of view is to conduct a ‘pre-mortem'. Here's how it works, why it works and an example of how it helped us get through some COVID-19-related challenges.

Pre-mortems can help prevent failure

We're all familiar with post-mortems. We see them on TV shows like CSI where a white-coated medical professional wields a scalpel and cuts into the corpse of the deceased to find out what happened, when and why.

When a business dies, a similar process occurs. An administrator with a financial scalpel cuts into the corpse of the business to identify what happened, when and why.

Both types of post-mortems have value, but they don't alter the sad fact that the ‘patient' has passed away. But what if we did things differently, before the post-mortem was needed? What if we conducted a pre-mortem on the business before it died so that we can predict what might go wrong before it goes wrong? Could that be useful?

I've been using pre-mortems in my business for decades now, and they are a powerful management tool that helps my team identify why a project or business has failed. We then work backwards to determine what could have led to that failure. The concept was created by a group of academics. Deborah J. Mitchell of the Wharton School, Jay Russo of Cornell and Nancy Pennington of the University of Colorado. As noted in Harvard Business Review, the researchers discovered that ‘prospective hindsight — imagining that an event has already occurred — increased the ability to correctly identify reasons for future outcomes by 30%’.

If I can minimise my risk of failure by 30 per cent simply by imagining what could go wrong, that's a good use of my time. (I think about what could go wrong all the time anyway, so I may as well use the angst for a good purpose.)

The essence of a pre-mortem is that you don't wait for the business to fail before you examine it. You act ‘as if' the business has already failed and then you work backwards to unpick the events that could lead to failure and install solutions so that it doesn't happen in the first place.

I often get asked, ‘Is a pre-mortem the same as Edward de Bono's “black hat” brainstorming session?' Not quite. Those sessions are predicated on asking team members what might go wrong; the pre-mortem operates on the assumption that the ‘patient' has died, and so asks what did go wrong as if the disaster has already occurred.

There are dozens of things that can go wrong with a business. Some of them will be under your control, others won't. It's important to summarise them all because while you can't control external influences and situations, the very act of thinking about them and predicting what could happen helps you create strategies for mitigating the damage they could cause.

The value of real-time reports and why they matter

People often ask us how we can make pubs work when others can't: how we can extract a profit from a sector when others are losing money hand over fist. There are many reasons for our success, but one of them is due to my insistence on and discipline with creating real-time reports.

Now before you head off into snooze land at the thought of a deep dive into reports, just know that getting real-time, accurate data is the key to the success of every business. Look at Kogan, the online retailer that became a billion-dollar sensation when it listed on the Australian Stock Exchange in 2016. One of the reasons it's been so successful is because it was an early exponent of dynamic pricing. What does this mean? It means that before it lists a product and its price, the software does an electronic sweep of the internet for all the current prices of that product, and then presents the customer with the best price at that particular time of the day. That price may change in a few hours or even a few minutes, but it's calibrated to be the best price at that moment.

We're not an e-commerce business with thousands of products available for sale 24/7 so we don't need that level of complexity to work out our pricing, but just as Kogan assesses multiple factors to determine a price, so do we. Those factors are simple in nature but you'd be surprised at how many business owners fail to even know the most basic numbers that sit behind their key business decisions, such as pricing. They don't know what they've sold, when, for how much, how often, what it cost, what the gross profit was and much more. We know all that and more about our products and services, and importantly, my managers know it too. Data is useless if it doesn't get into the hands of the right people, at the right time — and the right people are my staff and the right time is daily.

Making cents of the profit and loss

It will come as no surprise to you to know that I think the profit and loss statement is one of the most powerful management tools any business can have. If you haven't already familiarised yourself with this report, make haste and do so as it's the beating heart behind your business.

I've had many a debate with some top accountants about how to tweak gross profit here and wage percentages there; and how if we adjusted the prices here, we could increase sales there, which would result in this business increasing in value by this much, while the other business would increase in value by that much. While it's an entertaining conversation to have (for people like me who love playing with figures), it can descend into an intellectualised debate because for all those numbers and assumptions to align and be useful, you're relying on the business maintaining the same quantity of sales and the same level of expenses, and expecting the customers to do exactly the same thing every day — which of course they don't. It's enough to drive you to drink!

So, you have to get back to basics, work with what you have and know and make it your daily aim to do what you do well with what you have. To do that, you need to get back to basics. You might be interested in knowing what factors we track and what our reports look like. No matter what business you're in, these are the kinds of reports everyone can use and benefit from. Here are a few of the factors we track on a daily basis:

• sales
• purchases
• gross profit
• wages
• cash flow.

Tracking these variables is pretty simple to do, but you'd be surprised at how few businesses actually do it. I don't know how you can't measure them: if you don't, how do you know what you're doing? Get the basics right by analysing the data and you'll find that a lot of the decision making will be done for you.

Build a relationship with your banker

To manage cash flow, it really helps to have good relationships with all your strategic partners and your suppliers so that you know what your terms of trade are and how long you have before payments become due. It's important to be able to communicate quickly with them if you can't make those terms. If you can control these factors, you're controlling your business — not the other way around.

If you find yourself in this situation, the best — and sometimes the only — thing to do is to come clean. Ring the bank, tell them the situation you're in, ask for their help and organise a payment plan to pay down the debt. Most banks will appreciate you being upfront with them and will help you get back on track — and they have special loan schemes to help you pay back a tax debt with very manageable interest rates. This is why it pays to have a relationship with your banker. If they already know you, trust you and can see you have a good track record, they're more likely to work with you to help you get through it. Having a relationship will not only help you get through this rough patch, it will potentially smooth the path for any future loans or financing you may need.

Banks don't like to take risks on anything, and anyone who has an unpaid tax debt will not be looked upon favourably when applying for a loan.

How credit departments work (and why it takes forever to get a loan approved)

Do you know why it takes banks so long to approve a loan application? It's because so many people and departments within the bank look at your application. It moves through multiple hands and each of them looks at it very carefully, assessing it against a whole range of measures you may not be aware of. Tax debt is one of them.

The bank's credit department is generally broken into tiers: from residential lending (up to $3 million) to small business lending ($3 million–$50 million) right through to institutional lending ($50 million+). Each tier has the ability to approve an application for a certain amount. Once the amount tips over into another band, a new set of rules and lending criteria apply. Your application will generally be managed by one person and they'll monitor its progress. While this person won't (generally) lose their job if they lend money to someone who doesn't pay it back, they will be hauled over the coals and interrogated as to why they loaned out the money and it won't be a pleasant day at the office for that person. That's a long way of saying that your loan application gets looked at carefully by real people, in real time, and that having a personal relationship with your bank can be of enormous help. If they know you, have talked to you, understand your situation and trust you, they'll be more likely to give you the benefit of the doubt.

Dashboards rule

While real-time reports are good, having a weekly dashboard that focuses on the key elements of your business is even better. Dashboards need to take into account the variable costs and revenues so that you can keep tabs on these anomalies. And don't worry too much if the dashboard doesn't show a positive sign every week. You may have a big, one-off expense coming in (like a renovation or a tax bill) or have to pay an electricity bill this week that won't arise for another quarter. Sales, of course, will fluctuate depending on the season too, but by monitoring these on a weekly basis you can start to see the trends and spot any outliers that could be threatening you in the future. You definitely want to keep tabs on expenses because if they blow out, you need to be able to act quickly to bring them under control.