1 00:00:04,170 --> 00:00:07,050 Adam Lang: Welcome to the Fear and Greed daily interview. I'm Adam 2 00:00:07,050 --> 00:00:10,770 Adam Lang: Lang. Australian companies are facing a lot of challenges right 3 00:00:10,770 --> 00:00:16,230 Adam Lang: now, staff shortages, rising costs, interest rates, energy prices, cyber 4 00:00:16,230 --> 00:00:19,440 Adam Lang: threats. The list is pretty extensive. And now we can 5 00:00:19,440 --> 00:00:23,189 Adam Lang: add the challenge of working capital as well. With average 6 00:00:23,190 --> 00:00:27,750 Adam Lang: working capital cycles lengthening by more than five days in 7 00:00:27,750 --> 00:00:33,418 Adam Lang: 2022, that means an additional 11. 1 billion is effectively 8 00:00:33,420 --> 00:00:37,979 Adam Lang: locked up for Australian companies. Jason Ireland and Sean Wiles 9 00:00:38,010 --> 00:00:41,880 Adam Lang: are partners at McGrathNicol Advisory, and they're the co- authors 10 00:00:41,909 --> 00:00:45,989 Adam Lang: of the 10th annual working capital report. McGrathNicol is a 11 00:00:45,990 --> 00:00:49,800 Adam Lang: supporter of this podcast. Jason, welcome back to Fear and Greed. 12 00:00:50,159 --> 00:00:50,820 Jason Ireland: Great to be here. 13 00:00:51,299 --> 00:00:54,269 Adam Lang: And Sean, good morning and welcome back to Fair and Greed too. 14 00:00:54,660 --> 00:00:56,040 Sean Wiles: Good day, Adam. Thanks for having us. 15 00:00:56,430 --> 00:00:59,040 Adam Lang: It's a pleasure. Jason, let me start with you. I 16 00:00:59,040 --> 00:01:01,800 Adam Lang: mentioned a couple of the statistics, and they are pretty 17 00:01:01,800 --> 00:01:05,788 Adam Lang: confronting, but let's first rewind a bit. When we're referring 18 00:01:05,789 --> 00:01:08,850 Adam Lang: to working capital, what are we actually talking about? 19 00:01:09,630 --> 00:01:13,020 Jason Ireland: Yeah. So simple questions sometimes a complicated answer, but I'll 20 00:01:13,020 --> 00:01:15,810 Jason Ireland: do my best. So at its most basic, it's the 21 00:01:15,810 --> 00:01:19,259 Jason Ireland: link between your profit and loss statement, so your revenue 22 00:01:19,260 --> 00:01:23,490 Jason Ireland: and your costs, and your actual cash flow. So the 23 00:01:23,490 --> 00:01:27,660 Jason Ireland: elements of that are accounts receivable, so sales that you've 24 00:01:27,660 --> 00:01:31,380 Jason Ireland: made but you haven't yet collected the money, accounts payable, 25 00:01:31,470 --> 00:01:34,560 Jason Ireland: so costs you've incurred, but you haven't yet paid the 26 00:01:34,560 --> 00:01:38,580 Jason Ireland: money. And inventory, stock sitting on your shelves that hopefully 27 00:01:38,580 --> 00:01:43,349 Jason Ireland: one day will convert into cash. Taken collectively, that's the 28 00:01:43,349 --> 00:01:47,250 Jason Ireland: working capital of a business. It's often measured in dollars. 29 00:01:47,250 --> 00:01:49,440 Jason Ireland: So you might hear someone say, " I've had a $ 100 30 00:01:49,440 --> 00:01:53,850 Jason Ireland: million tied up in working capital. It's actually better tracked 31 00:01:53,850 --> 00:01:57,089 Jason Ireland: in days because that tells you how long you have 32 00:01:57,090 --> 00:02:00,150 Jason Ireland: it to tied up in working capital. So a long 33 00:02:00,210 --> 00:02:04,230 Jason Ireland: working capital cycle means you have a long time to 34 00:02:04,230 --> 00:02:08,880 Jason Ireland: wait between your profit becoming your cash. So this lengthening 35 00:02:08,880 --> 00:02:11,190 Jason Ireland: of the working capital cycle that we've seen in our 36 00:02:11,190 --> 00:02:16,380 Jason Ireland: report means cash has been tied up for longer in businesses. 37 00:02:17,490 --> 00:02:21,059 Adam Lang: And Jason, just to be super clear, how does working 38 00:02:21,059 --> 00:02:24,149 Adam Lang: capital differ from cash flow? Is it the length of 39 00:02:24,150 --> 00:02:25,260 Adam Lang: time between the two? 40 00:02:25,740 --> 00:02:28,709 Jason Ireland: That's right. So the cash flow is actually money flowing 41 00:02:28,710 --> 00:02:32,460 Jason Ireland: into your bank account. Whereas, your working capital is a 42 00:02:32,460 --> 00:02:35,819 Jason Ireland: sale that you've made. But that period of time between 43 00:02:35,820 --> 00:02:38,759 Jason Ireland: when you make it and you collect it, it's in 44 00:02:38,820 --> 00:02:42,179 Jason Ireland: working capital, it's tied up. Inventory might even be an 45 00:02:42,180 --> 00:02:45,930 Jason Ireland: easier one, Adam. So there is inventory sitting on your 46 00:02:45,930 --> 00:02:51,358 Jason Ireland: shelf, you've invested capital and cost into buying or making 47 00:02:51,360 --> 00:02:55,710 Jason Ireland: that. So it's sitting there in working capital, one day 48 00:02:55,710 --> 00:02:57,569 Jason Ireland: it will become cash, but not yet. 49 00:02:58,650 --> 00:03:02,010 Adam Lang: And Sean, why has the working capital cycle blown out 50 00:03:02,010 --> 00:03:05,040 Adam Lang: by so much in the last year? Does that relate 51 00:03:05,040 --> 00:03:06,179 Adam Lang: back to supply chains? 52 00:03:07,020 --> 00:03:09,990 Sean Wiles: Yeah, the cycle did blow out, Adam, as you mentioned, 5. 53 00:03:10,260 --> 00:03:14,370 Sean Wiles: 3 days, and Jason explained, I suppose, some of the 54 00:03:14,639 --> 00:03:18,480 Sean Wiles: contextual reasons behind it. The lengthening of the cycle was 55 00:03:18,480 --> 00:03:21,510 Sean Wiles: the most significant we've seen in the 10 years that we've published 56 00:03:21,510 --> 00:03:25,709 Sean Wiles: our report, and supply chains were the root cause. Adam, 57 00:03:26,220 --> 00:03:30,330 Sean Wiles: our sampled companies held over 10 days more inventory on 58 00:03:30,330 --> 00:03:33,059 Sean Wiles: average than they did the prior year, and they also 59 00:03:33,059 --> 00:03:36,749 Sean Wiles: collected from their customers more slowly. So they had, I 60 00:03:36,750 --> 00:03:40,770 Sean Wiles: suppose, the dual pressure of holding more inventory but getting 61 00:03:40,770 --> 00:03:42,361 Sean Wiles: paid more slowly for the sales they were making. 62 00:03:42,361 --> 00:03:45,629 Adam Lang: Right. And so, Sean, are you seeing an impact on how 63 00:03:45,630 --> 00:03:48,899 Adam Lang: companies change their approach to working capital management? 64 00:03:50,099 --> 00:03:52,830 Sean Wiles: Yeah, this is an interesting one. Adam, close to 80% 65 00:03:52,830 --> 00:03:57,000 Sean Wiles: of our sample reported an increase in networking capital as 66 00:03:57,000 --> 00:04:00,150 Sean Wiles: a proportion of revenue. So what that means is that 67 00:04:00,150 --> 00:04:03,780 Sean Wiles: a higher working capital load was required by those companies 68 00:04:03,780 --> 00:04:07,470 Sean Wiles: to support their trading activity to generate their revenue. And 69 00:04:07,500 --> 00:04:11,640 Sean Wiles: this has clearly brought working capital management more into focus, 70 00:04:12,029 --> 00:04:15,180 Sean Wiles: particularly in terms of getting the basics right. We've seen 71 00:04:15,180 --> 00:04:20,190 Sean Wiles: good process, clear roles and responsibilities, and, interestingly, a shift 72 00:04:20,190 --> 00:04:23,759 Sean Wiles: to the use of technology mentioned by the CFOs that 73 00:04:23,759 --> 00:04:26,279 Sean Wiles: we've spoken to and surveyed as part of our report. 74 00:04:26,279 --> 00:04:28,829 Sean Wiles: And that's meant an increase in the use of things 75 00:04:28,830 --> 00:04:33,120 Sean Wiles: like data analytics and working capital dashboards, which have supplemented 76 00:04:33,120 --> 00:04:35,039 Sean Wiles: those basics of working capital management. 77 00:04:35,310 --> 00:04:38,190 Adam Lang: Sean, just a quick one on that. Are you sensing that 78 00:04:38,190 --> 00:04:40,529 Adam Lang: part of it was because of the risks of supply 79 00:04:40,529 --> 00:04:43,738 Adam Lang: chain management that people thought it was prudent to have 80 00:04:43,740 --> 00:04:46,710 Adam Lang: longer cycles involved, or was it not as deliberate as that? 81 00:04:47,100 --> 00:04:49,500 Sean Wiles: I think when you talk about it in terms of 82 00:04:49,830 --> 00:04:53,460 Sean Wiles: inventory management, and Jason and I saw this within the 83 00:04:53,460 --> 00:04:57,118 Sean Wiles: numbers or we saw a caution in terms of the 84 00:04:57,120 --> 00:05:01,229 Sean Wiles: way that businesses managed their inventory load in particular to 85 00:05:01,230 --> 00:05:04,590 Sean Wiles: avoid stockouts. They also had to do so obviously with 86 00:05:05,250 --> 00:05:08,640 Sean Wiles: the disruptions to supply chain that we've seen and reported 87 00:05:08,640 --> 00:05:12,719 Sean Wiles: so widely. So I think on one hand there was 88 00:05:12,720 --> 00:05:16,440 Sean Wiles: that deliberate move by businesses to make sure they had 89 00:05:16,440 --> 00:05:21,869 Sean Wiles: enough stock to be themselves through the uncertainty. On the 90 00:05:21,870 --> 00:05:24,390 Sean Wiles: other hand, we saw businesses in some sectors really impacted 91 00:05:24,390 --> 00:05:28,170 Sean Wiles: by supply chain disruptions in terms of getting their product 92 00:05:28,200 --> 00:05:30,270 Sean Wiles: out the door and out of the country. So they 93 00:05:30,270 --> 00:05:33,419 Sean Wiles: were stuck with some stock that they probably didn't think 94 00:05:33,420 --> 00:05:35,669 Sean Wiles: that they would have and would've sold if it weren't 95 00:05:35,670 --> 00:05:37,290 Sean Wiles: for those supply chain disruptions. 96 00:05:37,589 --> 00:05:39,809 Adam Lang: So some things were in their control and some things 97 00:05:39,809 --> 00:05:42,750 Adam Lang: were not. Were you seeing a difference in how this 98 00:05:42,750 --> 00:05:46,349 Adam Lang: applied to smaller businesses that might have had more limited reserves? 99 00:05:47,370 --> 00:05:49,200 Sean Wiles: Yeah, that's a really good question. And we're often asked 100 00:05:49,200 --> 00:05:52,920 Sean Wiles: that because our research really focuses on the larger businesses, 101 00:05:53,428 --> 00:05:56,818 Sean Wiles: and we saw those larger companies pay their suppliers more 102 00:05:56,820 --> 00:06:01,290 Sean Wiles: slowly in 2022, and we often see that the brunt 103 00:06:01,290 --> 00:06:03,930 Sean Wiles: of this is born by smaller businesses, so it just 104 00:06:03,930 --> 00:06:06,870 Sean Wiles: magnifies the need for them. Adam, we think to run 105 00:06:06,870 --> 00:06:09,448 Sean Wiles: a really tight chip when it comes to managing working 106 00:06:09,450 --> 00:06:14,849 Sean Wiles: capital, fostering relationships with customers and suppliers, it sounds easy, 107 00:06:14,849 --> 00:06:17,250 Sean Wiles: but that's where it really starts and where the rubber 108 00:06:17,250 --> 00:06:20,070 Sean Wiles: hits the road for good working capital management, and agreeing 109 00:06:20,070 --> 00:06:23,580 Sean Wiles: terms with those customers and supplies that best support their 110 00:06:23,580 --> 00:06:24,180 Sean Wiles: cash flow. 111 00:06:24,870 --> 00:06:27,510 Adam Lang: Investing more energy in those relationships. So you can get 112 00:06:27,510 --> 00:06:28,529 Adam Lang: through those periods. 113 00:06:28,678 --> 00:06:29,159 Sean Wiles: That's right. 114 00:06:29,610 --> 00:06:37,560 Adam Lang: Stay with me. We'll be back in a minute. I'm speaking 115 00:06:38,040 --> 00:06:42,300 Adam Lang: to Jason Ireland and Sean Wiles, partners at McGrathNicol Advisory. 116 00:06:43,200 --> 00:06:45,389 Adam Lang: Jason, if we have a look at a few sectors 117 00:06:45,389 --> 00:06:49,769 Adam Lang: in particular, construction, food and beverage, and retail, starting with 118 00:06:49,770 --> 00:06:53,369 Adam Lang: construction, this is one of the most working capital intensive 119 00:06:53,369 --> 00:06:57,089 Adam Lang: sectors, and we've seen some really high profile collapses in 120 00:06:57,089 --> 00:07:00,690 Adam Lang: the last 12 months. What does your report say about construction? 121 00:07:01,110 --> 00:07:04,589 Jason Ireland: You're exactly right. There have been high profile failures in 122 00:07:04,589 --> 00:07:08,069 Jason Ireland: this sector and a lot of publicity about potential for 123 00:07:08,070 --> 00:07:12,660 Jason Ireland: more. 2022 was a really busy but a very difficult 124 00:07:12,660 --> 00:07:16,560 Jason Ireland: year for the construction sector. What our survey showed that 125 00:07:16,830 --> 00:07:19,619 Jason Ireland: 75% of the companies we looked at actually saw an 126 00:07:19,620 --> 00:07:23,309 Jason Ireland: increase in revenue, but only 58% of them were able 127 00:07:23,309 --> 00:07:26,759 Jason Ireland: to turn it into an increase in profit. Construction and 128 00:07:26,759 --> 00:07:30,780 Jason Ireland: engineering is a relatively low margin sector, so it's all 129 00:07:30,780 --> 00:07:35,940 Jason Ireland: about cash, it's all about managing that cycle. What's interesting 130 00:07:35,940 --> 00:07:40,260 Jason Ireland: from the data is that the construction and engineering sector 131 00:07:40,290 --> 00:07:43,768 Jason Ireland: actually has the longest time between when it makes a 132 00:07:43,770 --> 00:07:46,139 Jason Ireland: sale, when it collects it. So it has the longest 133 00:07:46,139 --> 00:07:49,770 Jason Ireland: collection cycle, and in fact, that collection cycle is longer 134 00:07:49,770 --> 00:07:52,860 Jason Ireland: than the cycle it needs to pay its suppliers on. 135 00:07:52,860 --> 00:07:55,680 Jason Ireland: So there's actually just a structural gap in that sector, 136 00:07:55,980 --> 00:07:59,190 Jason Ireland: which is why cash flow is so important. So managing 137 00:07:59,190 --> 00:08:02,759 Jason Ireland: your cycle really tight is very, very key for that 138 00:08:02,759 --> 00:08:06,150 Jason Ireland: sector. And it's been difficult because you've got supply chain 139 00:08:06,150 --> 00:08:09,390 Jason Ireland: issues where you've got your own suppliers in the sector 140 00:08:09,390 --> 00:08:12,240 Jason Ireland: wanting to be paid more quickly, and you've got projects 141 00:08:12,240 --> 00:08:15,660 Jason Ireland: which are disrupted, which means you are getting paid more 142 00:08:15,660 --> 00:08:18,300 Jason Ireland: slowly. So it's been a tough year. We saw in 143 00:08:18,300 --> 00:08:22,709 Jason Ireland: that sector that collection cycle blow out by over a 144 00:08:22,709 --> 00:08:26,280 Jason Ireland: week, which is a huge imposition on the cash flows 145 00:08:26,280 --> 00:08:27,420 Jason Ireland: of those businesses. 146 00:08:27,930 --> 00:08:31,320 Adam Lang: And Jason, is Australia unique in this regard? How does 147 00:08:31,320 --> 00:08:32,490 Adam Lang: that compare globally? 148 00:08:33,000 --> 00:08:37,020 Jason Ireland: Australia's actually pretty good, and the construction engineering. Australian businesses 149 00:08:37,320 --> 00:08:40,228 Jason Ireland: become quite good at their collection cycle. So while I 150 00:08:40,230 --> 00:08:43,860 Jason Ireland: said it increased, it's no more than any other of 151 00:08:43,860 --> 00:08:45,630 Jason Ireland: the markets that we look at. So we looked at 152 00:08:45,630 --> 00:08:48,600 Jason Ireland: Asia, we looked at the EU, and we looked at 153 00:08:48,750 --> 00:08:53,370 Jason Ireland: the US. So Australian construction businesses are actually pretty good 154 00:08:53,429 --> 00:08:55,620 Jason Ireland: at their working capital management. 155 00:08:56,250 --> 00:08:58,740 Adam Lang: So, Jason, looking at food and beverage, and that's another 156 00:08:58,740 --> 00:09:02,069 Adam Lang: interesting sector because it also was hit very hard by 157 00:09:02,070 --> 00:09:04,980 Adam Lang: COVID, but things do seem to be improving. 158 00:09:05,280 --> 00:09:08,760 Jason Ireland: Yes, it's one. Sean mentioned earlier about trying to manage 159 00:09:08,790 --> 00:09:13,650 Jason Ireland: your inventory cycle. It has the highest inventory load of 160 00:09:13,650 --> 00:09:17,730 Jason Ireland: any sector, and it's all the largest increase. I think 161 00:09:17,730 --> 00:09:22,050 Jason Ireland: a combination of things really jagged demand. So getting your 162 00:09:22,050 --> 00:09:25,320 Jason Ireland: inventory match to your demand has been really difficult for 163 00:09:25,440 --> 00:09:30,090 Jason Ireland: food and beverage, and therefore, that disconnect has created, in 164 00:09:30,090 --> 00:09:33,929 Jason Ireland: some instances, companies where they're holding too much. But also 165 00:09:33,929 --> 00:09:36,179 Jason Ireland: there's been other areas where we've seen, " Okay, well, we're 166 00:09:36,179 --> 00:09:39,360 Jason Ireland: opening up, we're coming into a higher demand part of 167 00:09:39,360 --> 00:09:42,930 Jason Ireland: the year," or, as I said, " Lockdowns are being lifted, 168 00:09:43,200 --> 00:09:47,219 Jason Ireland: so people get up." So a really material increase over 169 00:09:47,219 --> 00:09:53,100 Jason Ireland: 23 days, over three weeks' in inventory being held for longer. 170 00:09:53,969 --> 00:09:55,800 Adam Lang: So, Jason, the last of the sectors, we've talked a 171 00:09:55,800 --> 00:09:59,340 Adam Lang: bit about construction, food and beverage. What about retail? Have 172 00:09:59,370 --> 00:10:03,149 Adam Lang: supply chain problems affected working capital in retail too? 173 00:10:03,420 --> 00:10:08,338 Jason Ireland: No doubt. Retail's your other large inventory holding sector, so 174 00:10:08,730 --> 00:10:13,980 Jason Ireland: it carries over 130 days of inventory, so months of 175 00:10:13,980 --> 00:10:18,600 Jason Ireland: inventory, and it actually increased by, again, over three weeks. 176 00:10:18,600 --> 00:10:22,920 Jason Ireland: So a combination of factors there. Supply chain being really 177 00:10:22,920 --> 00:10:27,150 Jason Ireland: difficult to manage, but also demand being very difficult to 178 00:10:27,150 --> 00:10:30,150 Jason Ireland: manage. And if you think about most of these companies 179 00:10:30,150 --> 00:10:34,380 Jason Ireland: reporting around June, the retail sector, because of that supply 180 00:10:34,380 --> 00:10:37,500 Jason Ireland: chain difficulty they've been seeing, have had to place their 181 00:10:37,500 --> 00:10:40,620 Jason Ireland: bets earlier this year so that they're certain that they 182 00:10:40,620 --> 00:10:45,269 Jason Ireland: will have inventory in stores for Christmas. So that has 183 00:10:45,270 --> 00:10:48,120 Jason Ireland: just naturally led to higher inventory carrying. 184 00:10:48,690 --> 00:10:52,800 Adam Lang: Sean Wiles, partner at McGrathNicol Advisory. I'm going to turn 185 00:10:52,800 --> 00:10:54,960 Adam Lang: to you now for perhaps one of the more challenging 186 00:10:54,960 --> 00:10:57,630 Adam Lang: parts of the interview. I'm going to ask you about 187 00:10:57,630 --> 00:11:01,230 Adam Lang: what's ahead of us. Your survey of company leaders found 188 00:11:01,230 --> 00:11:06,059 Adam Lang: that 95% believe working capital management has become harder in 189 00:11:06,059 --> 00:11:10,290 Adam Lang: the last two years, but interestingly, nearly 90% of them 190 00:11:10,290 --> 00:11:13,770 Adam Lang: are confident about how their business cash flow over the 191 00:11:13,770 --> 00:11:16,560 Adam Lang: next 12 months can be managed. Where do you think 192 00:11:16,620 --> 00:11:18,059 Adam Lang: this confidence is coming from? 193 00:11:19,500 --> 00:11:22,529 Sean Wiles: Yeah. Adam, it's the first time we've run this survey 194 00:11:22,529 --> 00:11:25,140 Sean Wiles: as part of our analysis. So it was good, I 195 00:11:25,140 --> 00:11:27,870 Sean Wiles: think, to get that broad cross- section of feedback from 196 00:11:27,870 --> 00:11:31,860 Sean Wiles: across all parts of the market. So over 300 CFOs 197 00:11:31,860 --> 00:11:34,050 Sean Wiles: and business leaders were included in that survey. And I 198 00:11:34,050 --> 00:11:37,110 Sean Wiles: think, to your first point, the main undercurrent that we 199 00:11:37,110 --> 00:11:39,000 Sean Wiles: saw from the survey was that it will continue to 200 00:11:39,000 --> 00:11:42,780 Sean Wiles: be hard for businesses over the next 12 months. Where 201 00:11:42,780 --> 00:11:46,559 Sean Wiles: we take that positivity or confidence in terms of cash 202 00:11:46,559 --> 00:11:49,470 Sean Wiles: flow actually came in one of the statistics that we 203 00:11:49,470 --> 00:11:53,010 Sean Wiles: saw, in that 80% of respondents that had changed their 204 00:11:53,010 --> 00:11:57,000 Sean Wiles: working capital management practices over the last year were seeing 205 00:11:57,000 --> 00:12:00,840 Sean Wiles: improvements. So there was reward for effort, if you like, 206 00:12:00,840 --> 00:12:03,390 Sean Wiles: the ones or the businesses that had put the time 207 00:12:03,390 --> 00:12:07,500 Sean Wiles: into tightening their practices, as we're talking about earlier, really 208 00:12:07,500 --> 00:12:12,629 Sean Wiles: managing those relationships with suppliers and customers. We're seeing the 209 00:12:12,630 --> 00:12:15,780 Sean Wiles: positive impact of that, which I think in our view, 210 00:12:16,109 --> 00:12:19,650 Sean Wiles: translates, I think, into the hope of stronger cash flows 211 00:12:19,980 --> 00:12:22,708 Sean Wiles: over the next 12 months or maybe past that. 212 00:12:23,640 --> 00:12:26,220 Adam Lang: Sean, did you get the sense that maybe we're getting 213 00:12:26,220 --> 00:12:28,710 Adam Lang: better at it, that we'd been through some really tough 214 00:12:28,710 --> 00:12:30,449 Adam Lang: times and we'd learned how to do it better? 215 00:12:30,809 --> 00:12:34,529 Sean Wiles: I think, Adam, COVID thought businesses a lot about how 216 00:12:34,529 --> 00:12:37,710 Sean Wiles: to manage working capital. Obviously the government helped as well 217 00:12:37,710 --> 00:12:40,708 Sean Wiles: with managing cash flow, but we definitely saw in the 218 00:12:40,710 --> 00:12:43,260 Sean Wiles: early parts of COVID that businesses faced with that level 219 00:12:43,260 --> 00:12:45,599 Sean Wiles: of uncertainty had to, as I said earlier, get back 220 00:12:45,599 --> 00:12:49,290 Sean Wiles: to basics. They had to communicate with their customers more, they 221 00:12:49,290 --> 00:12:51,210 Sean Wiles: had to manage their supplies better, they had to really 222 00:12:51,210 --> 00:12:54,240 Sean Wiles: look at the way that they purchase. So they changed 223 00:12:54,240 --> 00:12:57,450 Sean Wiles: their purchasing behaviors that they looked at optimal level of 224 00:12:57,450 --> 00:13:00,809 Sean Wiles: stock, they looked at costs across the business and how 225 00:13:00,809 --> 00:13:03,750 Sean Wiles: all these things interrelated. So I think it really forced 226 00:13:03,990 --> 00:13:08,039 Sean Wiles: an element of laziness out of some businesses and got 227 00:13:08,040 --> 00:13:10,410 Sean Wiles: back to that sort of basic, what makes our business 228 00:13:10,410 --> 00:13:14,850 Sean Wiles: drive, what makes it effective from both a revenue generation, 229 00:13:14,850 --> 00:13:18,449 Sean Wiles: cost management, and working capital management point of view. And 230 00:13:18,450 --> 00:13:20,550 Sean Wiles: I think Jason and I are seeing a lot of 231 00:13:20,550 --> 00:13:24,690 Sean Wiles: businesses take those learnings now into a post- COVID environment, 232 00:13:24,690 --> 00:13:27,480 Sean Wiles: albeit with a bunch of other challenges when it comes 233 00:13:27,480 --> 00:13:31,020 Sean Wiles: to supply chain constraints, the war in the Ukraine, and 234 00:13:31,020 --> 00:13:35,010 Sean Wiles: so forth. So there's definitely, I think we're seeing it 235 00:13:35,010 --> 00:13:38,760 Sean Wiles: on the radar, working capital management rightfully at the table 236 00:13:38,760 --> 00:13:41,520 Sean Wiles: with other important parts of managing a business. 237 00:13:42,000 --> 00:13:45,360 Adam Lang: That's great insight. And, Jason Ireland, turning back to you, 238 00:13:45,599 --> 00:13:49,260 Adam Lang: how important is it for businesses to collect money faster 239 00:13:49,650 --> 00:13:52,320 Adam Lang: and in turn pay supplies faster as well? 240 00:13:52,770 --> 00:13:55,260 Jason Ireland: Yeah. Let's look at the first bit of that, firstly. 241 00:13:55,260 --> 00:13:58,620 Jason Ireland: I mean, what business doesn't want cash? More cash more 242 00:13:58,620 --> 00:14:01,530 Jason Ireland: often coming in faster, and the second bit of it 243 00:14:01,530 --> 00:14:05,069 Jason Ireland: is actually gives you more options. And so being able 244 00:14:05,070 --> 00:14:08,940 Jason Ireland: to pay your suppliers faster means you're a good counterparty 245 00:14:08,940 --> 00:14:11,550 Jason Ireland: to deal with. And so when there is difficulty in 246 00:14:11,550 --> 00:14:14,670 Jason Ireland: that supply chain, you're hoping that you get an advantage 247 00:14:14,670 --> 00:14:17,519 Jason Ireland: because you've been a good payer, you've met all the 248 00:14:17,520 --> 00:14:21,570 Jason Ireland: terms. So it just provides you with a comparative advantage, 249 00:14:21,780 --> 00:14:25,200 Jason Ireland: collecting more quickly, shores up your supply chain. In a 250 00:14:25,200 --> 00:14:27,240 Jason Ireland: difficult supply chain, you want to be at the top 251 00:14:27,240 --> 00:14:29,040 Jason Ireland: of the list, and being at the top of the 252 00:14:29,040 --> 00:14:34,260 Jason Ireland: list comes with paying quickly on time each time, regularly. 253 00:14:34,469 --> 00:14:36,840 Jason Ireland: And you can do that when your coffees are full. 254 00:14:37,349 --> 00:14:41,130 Adam Lang: Sean, beyond the ASX- listed companies and other large businesses, 255 00:14:41,549 --> 00:14:43,410 Adam Lang: what do you think are the key messages here for 256 00:14:43,410 --> 00:14:45,510 Adam Lang: the small and medium sized enterprises? 257 00:14:46,140 --> 00:14:49,500 Sean Wiles: Yeah. I think to summarize it, Adam, it's to be 258 00:14:49,500 --> 00:14:54,750 Sean Wiles: disciplined, embed processes and protocols that give those businesses the 259 00:14:54,750 --> 00:14:58,049 Sean Wiles: best chance to hold the right level of stock and 260 00:14:58,049 --> 00:15:01,469 Sean Wiles: get paid on time. I think interestingly what comes out 261 00:15:01,500 --> 00:15:03,750 Sean Wiles: of our data most years is that for those that can 262 00:15:03,750 --> 00:15:07,350 Sean Wiles: do it, there's a real material competitive advantage to be 263 00:15:07,350 --> 00:15:11,759 Sean Wiles: gained by implementing best practice. And our analysis shows that 264 00:15:11,759 --> 00:15:15,719 Sean Wiles: this is only magnified in times of volatility and disruption 265 00:15:15,719 --> 00:15:17,909 Sean Wiles: like what we've seen over the last couple of years. 266 00:15:18,450 --> 00:15:21,180 Adam Lang: They're great insights. Jason, would you add anything else? 267 00:15:21,750 --> 00:15:24,510 Jason Ireland: I think discipline is the right thing. We've seen, and 268 00:15:24,510 --> 00:15:27,090 Jason Ireland: you saw from the survey results, that people that have 269 00:15:27,090 --> 00:15:30,780 Jason Ireland: actually implemented a process have seen results, and they feel 270 00:15:30,780 --> 00:15:31,470 Jason Ireland: more confident. 271 00:15:31,710 --> 00:15:34,980 Adam Lang: That's great advice. Jason and Sean, thank you both very 272 00:15:34,980 --> 00:15:36,420 Adam Lang: much for talking to Fear and Greed. 273 00:15:36,840 --> 00:15:37,290 Jason Ireland: Thanks Adam. 274 00:15:37,410 --> 00:15:37,979 Sean Wiles: Thanks Adam. 275 00:15:38,730 --> 00:15:42,450 Adam Lang: That was Jason Ireland and Sean Wiles, partners at McGrathNicol 276 00:15:42,450 --> 00:15:45,900 Adam Lang: Advisory, which is the supporter of this podcast. This is the 277 00:15:45,900 --> 00:15:48,690 Adam Lang: Fear and Greed daily interview. Join us every morning for 278 00:15:48,690 --> 00:15:51,659 Adam Lang: the full episode of Fear and Greed, Australia's most popular 279 00:15:51,660 --> 00:15:54,450 Adam Lang: business podcast. I'm Adam Lang. Enjoy your day.