Corpcentre's Blog

January 5, 2010

Risk Management: The Financial Safety Margin

Investing is a part of our culture. Many of us invest a portion of our income for our needs, present and future. However, investing carries with it an element of risk. Therefore, it makes good sense to build a safety margin into your personal investment plans.

Playing the stock market is virtually a national pastime. However, as recent history has proven, the value of stocks can plummet, sometimes quite rapidly. Therefore, some investors will attempt to pay the lowest possible price for stocks. If the floor should fall out from under that stock, you stand a good chance of recouping most of your money.

Even if your cash flow is healthy at present, always be prepared for the inevitable. Many jobs today are not 100% secure. Take a couple of months of living expenses and tuck the money away in a savings account or money market.

The dream of many newlyweds is the purchase of their first home. Many, though, make the mistake of sinking all their available cash into that purchase and further committing both their salaries to make the monthly mortgage payment. If you can’t afford the mortgage on one salary, think twice! If one job should disappear, you could face serious problems.

At the other end of the spectrum are those heading into their retirement years. Is your investment portfolio secure? Will you be able to rely on it? If you assume that the portfolio will generate a double-digit annual return, you may be surprised. Markets have proven to be rather volatile. It would be wiser to assume a much lower rate of return. Also, when you calculate withdrawals from your initial portfolio, experts advise withdrawing no more than an inflation-adjusted 4% each year. This amount will allow you to remain in a fairly stable condition, however the market moves.

Remember that investments mean risks and a safety margin is your best insurance policy.

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September 24, 2009

Shareholders Determine Executive Compensation

It’s commonly known as say-on-pay policy. In the United Kingdom and the Netherlands, say-on-pay is mandatory. Now, as Canadians desire to be viewed as doing the right thing, say-on-pay will become policy at 13 Canadian corporations beginning next year.

Say-on-pay, although sounding like the name of a children’s game, is by no means a game. It is a system whereby the shareholders of a corporation get to vote on executive compensation packages. Although the policy is merely advisory, it is by no means to be taken lightly. The board of directors is not obligated to follow the express directives of the shareholders. However, the vote by the shareholders – whether to increase top executive compensation, decrease executive pay, or leave it as is – can send a clear message to the board members.

In countries that regularly implement a say-on-pay policy, top company executives invest a good deal of effort to court shareholder votes. While they certainly have a vested interest in the outcome, the important factor is the open lines of communication between shareholders and corporation management. Regular discussion between the investors and operations is extremely important. The goal behind encouraging shareholders’ input is to break down the barrier that currently exists and allow management to understand how their investors view the company’s performance.

In an effort to encourage widespread acceptance of the say-on-pay policy, the Canadian Coalition for Good Governance is working on a model policy for boards to implement, including the wording of the actual resolution put to shareholders. As shareholders are likely to vote based on overall feelings and ignore the specifics, the Coalition hopes that the wording of their resolution will help shareholders focus their thoughts.

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September 8, 2009

Cyber-Shopping Anyone?

In a country that is so highly attached to Internet access and the latest high-tech gadgetry, Canadians are slow to adopt the trend of cyber-shopping – shopping online. Online sales have certainly been growing at a steady pace – a 61% rise in three years – but they still lag behind online sales in the United States.

Analysts attribute Canadian reluctance to become cyber-shoppers to several factors. High shipping costs in Canada have caused a large number of shoppers to abandon their online purchase before completing the transaction. Additionally, when it comes to security, Canadians are far more sensitive than most other nations around the world. Simply put, many Canadians have an abiding fear of credit card fraud and are skeptical about revealing their credit card details online.

On the other hand, the rise of specialty brands online is winning over Canadian reluctance. The allure of securing hard-to-get brands or one-of-a-kind items has been a boon for many online retailers.

Some of the nation’s larger retail outlets use their websites primarily for marketing and rely upon their sites to attract buyers to their stores. This has allowed a market to open up for smaller retailers whose “primary store” is located on the Internet.

Consumers still expect top service wherever they buy. For online stores, this translates into speedy and affordable delivery as well as reliable customer service. Moreover, online stores must market their sites in a variety of ways if they are to be noticed.

The variables of the economy affect the online stores as much as traditional shopping outlets. When consumers are in a spending mood, they are more likely to shop for items online that may be frivolous or unnecessary. However, when belt tightening begins, online retailers have to rapidly shift their focus to marketing items that are more affordable.

With annual sales in excess of $15 billion, and growing, cyber-sales seem to have carved out a niche with the Canadian consumer.

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September 3, 2009

Promoting Your Business on Social Networks

“The times they are a changin”. Bob Dylan wrote these words nearly 45 years ago. He must have been predicting the future.
It used to be quite common that people assembled at social events and exchanged ideas, recipes, political viewpoints, and suggestions on where to shop for the best value. The 21st century has not replaced the traditional social gathering. However, it has augmented that with the modern and very powerful equivalent – the social media network.

Marketing studies have shown that recommendations from friends and family have the greatest influence on what people purchase. As millions have become attached to various social networking sites that connect people with similar interests worldwide, the circle of influence grows much larger.

While most social media sites are not designed as shopping venues, marketing specialists know that exposure on these sites can be extremely valuable. A prime example is Facebook. Facebook has more than 200 million subscribers worldwide. Members enter their profile on the site. Generally, this includes your demographics, preferences and, often, your occupation. Marketing pros at a company will post an attractive profile for their product or service. As soon as a Facebook member visits that company’s profile, they are identified as a potential customer. Most Facebook members openly display their friends’ networks. This enables the same company to view this circle of friends also as potential customers. Moreover, as the company can obtain a substantial amount of personal information about its online customers, this information can be extremely helpful in future marketing strategies and product development.
Businesses have discovered that social networks afford exposure to their companies that otherwise might not occur. However, it is wise to keep in mind that these are social networks and acceptance of a commercial presence will require imaginative marketing, rather than mere technical placement of corporate material.
 
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September 1, 2009

Is a Second Round of the Recession on the Horizon?

Speculation has been growing in some economic circles that a “double-dip” recession – a second wave – is a distinct possibility. Some investors and economists fear that the government stimulus programs in various countries have managed to stabilize economies but have failed to jump start any long term growth.

Countries like Japan, Germany, and France have recently posted positive growth figures for the second quarter. However, world stock markets have remained fairly volatile.

The growing fear is that growth generated by the trillion of government stimulus dollars is only temporary and will cease as soon as the governments cease funding the various programs, most probably within the coming year. Thus, the term “double-dip” has come into use.

In order to truly declare an end to the recession, countries should be experiencing substantial sustained growth in consecutive quarters. This has failed to materialize yet in any significant fashion. Certainly, there is reason to be optimistic but consumers have yet to display a return to a strong buying mentality. Many are still in a savings mode, particularly in the United States. Even though interest rates are at an historic low in the U.S., many consumers fear taking on any more debt. Canadians are faring better than their neighbours in the U.S., but they, too, are still leery about the economy, as unemployment is still rampant in the nation, especially in the manufacturing sectors.

Economists hope that governments will not make the mistake of ending the stimulus packages too early. A good beginning can lead to a stable financial future if the elements of recovery are managed properly and timely.

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July 15, 2009

Canadian economy not to be outdone – Part II

At the G8 summit, both the U.S. President and British Prime Minister, among others called for additional economic stimuli on a global scale, despite the US$2 trillion already expended as they feel it has yet to push demand high enough. On the contrary, Canadian PM Stephen Harper urged other leaders to focus on ensuring proper delivery of those stimuli already promised. “That’s been our focus in Canada and I would encourage the same priority elsewhere,” he told the press.

Canada’s stimulus package consists of $46 billion over 2 years, poised for creating more jobs and igniting consumer demand. The amount is expected to increase to almost $80 billion once the provincial and territorial aspects kick in. PM Harper claims 80% of the planned federal funds have already been committed. In addition, Bank of Canada cut its key lending rate from 4.5% in December 2007 to its present level of .25%

Analysts see the present Canadian stimulus package taking effect in the next few months and see no need for any new stimulus monies. There is always a lag from the announcement of the stimulus package until effects are seen from it, must like that of lowering interest rates, according to Craig Wright, chief economist at Royal Bank of Canada. “Staying the course is probably the prudent path right now,” he says.

Stefane Marion, chief economist at National Bank Financial, agrees that we must wait for the money to start working in the economy. Canada’s financial system in general is in better shape than those of most other G8 countries and did not have the same real estate collapse that they did. He also sees production rising this year as indicated by purchasing managers and other key factors.
Furthermore, the IMF advises countries to continue to support their economies in some way until the recovery takes hold (predicted next year); while they should also plan to reduce deficits in their budgets caused by spending to combat the recession.
Canada, along with the IMF in general also agreed to make emergency capital available for borrowing, for countries that may need it soon.

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July 7, 2009

Entrepreneurs optimistic despite recession and tight credit, BDC survey says

A recent poll conducted by the Business Development Bank of Canada found that small business owners are positive about their own future, more so than for the economy or their individual industries. Many find tight credit to be an issue for their companies though.

86% of entrepreneurs surveyed saw growth potential for their companies, but less predicted growth for their industries (75%) and only 60% saw the economy growing in the future. “Entrepreneurs see opportunities where others may see only difficulties,” said Edmée Métivier, Executive Vice President of Financing and Consulting at BDC.

Tight credit the culprit

Those surveyed also found that their credit tightening was their biggest obstacle to growing their businesses (70%). The next biggest factor to blame was the recession at 65% of those polled, and fewer pointed to increased fuel costs and material (45% and 40% respectively).

Out of almost half of entrepreneurs polled who have attempted to get credit financing, 34% reported having received it and 40% said they were unsuccessful. The other 25% were still awaiting decisions. But 39% of all have dealt with tight credit as a factor.

In terms of the types of credit sought, the results showed the most wanted to operate a line of credit (70%), while 28% want term loans, 22% business credit cards and 18% commercial mortgages.

Positive for Growth

As far as general growth, 59% of entrepreneurs see the economy’s stability and strength as the number one factor that would lead to it, 41% point to the value of the Canadian dollar and 41% look to a strong labour market.

The Survey

The BDC has a new panel called BDC ViewPoints, whose participants are comprised of entrepreneurs and professionals that are asked to join surveys so they can express their views on policies, products as well as services that affect commercial banking.

In this particular survey, 231 entrepreneurs participated between May 6 and May 20. Results were weighted by the size of each firm and region in order to have the results accurately represent Canadian small and medium-sized businesses.

Detailed survey results are available on BDC’s website.

About BDC

BDC is Canada’s business development bank. From 100 offices across the country, BDC promotes entrepreneurship by providing highly tailored financing, venture capital and consulting services to entrepreneurs.

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