We are on the edge of a progressive recovery. A clear vision of your activities is needed and can be achieved by analyzing your profitability threshold.

In order to survive and regain momentum, you must review your corporate strategy and support your decisions with adequate data. To do this, it is essential that you analyze your profitability threshold and calculate the accounting “break-even” point.

Profitability threshold and break-even point: What are they?

The profitability threshold is the minimum amount of sales to be achieved during a targeted period to reach a balanced budget (break-even point). It enables you to determine whether a product or service is profitable, which is crucial information for supporting managers’ strategic decisions.

The accounting break-even point is a complementary indicator to the profitability threshold. It explains the relationship between cost, production volume and returns. It can be expanded to show how changes in the ratio of fixed to variable costs, such as raw material prices and revenues, affect a company’s profitability.

These two ratios are critical because they allow you to determine when your company breaks even, i.e., when it becomes profitable.

Know your profitability threshold to avoid flying blind

Analyzing the profitability threshold, but especially the accounting break-even point, allows company managers to establish different action plans based on key ratios. For example, they can use this data to set financial objectives and improve the profitability of a product or service.

In addition to being an essential management indicator, analyzing the break-even point helps determine when the company should start generating profits. Managing your business without these indicators is like running your business blind!

The importance of forecasts

Most companies have had to shut down or significantly reduce their operations in recent months. If they haven’t already done so, they will soon gradually start up again, and now, they have to deal with several completely new elements. During this gradual recovery, it will be difficult to know your actual sales. It is therefore important to make forecasts in advance that will allow you to restart or continue with realistic data.

Your sales, as well as the various fixed and variable costs, will have a direct impact on your profitability threshold and, consequently, on your accounting break-even point. Therefore, as soon as you determine these forecasts, you will be able to assess your project’s viability. If the forecasted data is not promising, you will be able to adjust your strategy accordingly, for example, by increasing your hourly rate or focussing on a more profitable part of your activities.

“Last year + 2%” no longer applies!

As you can see, there are many elements involved in calculating the break-even point. The many upheavals experienced throughout the supply chains means that companies’ forecast calculations are probably based on data that is no longer accurate. The benchmarks and reflexes must be revised. For a successful recovery, it is essential that you conduct a thorough analysis of the following.

1. Sales

There have been, and will continue to be, major changes in operations. Some entities have seen their business volume explode due to online sales but others, unfortunately, have seen a decline.

2. Fixed costs

Fixed costs are the recurring expenses that you have to pay, regardless of the company’s level of activity, such as depreciation, rent, administrative costs, various fees, salaries. This amount normally remains constant, regardless of your turnover. However, it is now important to take into account the subsidies offered by the government and other assistance measures from which you can benefit (exemption from/decrease in rent, agreement with banks for capital debt, non-payment of interest, etc.).

3. Variable costs

Variable costs, also called operating expenses, depend on the company’s activity and include, for example, supplies and transportation costs. Input prices are currently changing, this will have a direct impact on the contribution margin (sales – variable costs) and on the profitability threshold (fixed costs/contribution margin rate).

To ensure that you take into account all the variables needed to calculate the break-even point and analyze your company’s profitability, don’t hesitate to call on your trained professional accountant to assist you.

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The International Accounting Standards Board (IASB) has issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments require an entity to recognize deferred tax on certain transactions (e.g., leases and decommissioning liabilities) that give rise to equal amounts of taxable and deductible temporary differences on initial recognition.

In May 2021, the IASB issued narrow scope changes to IAS 12 Income Taxes (the amendments) to specify how entities should account for deferred tax on transactions such as leases and decommissioning obligations.

In specific circumstances, entities are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. This is referred to as the initial recognition exemption. There had been some diversity in practice as to whether the initial recognition exemption applied to transactions such as leases and decommissioning obligations. These are transactions where entities initially recognize both an asset and a liability.

The amendments clarify that the initial recognition exemption set out in IAS 12 does not apply and that entities are required to recognize deferred tax on these transactions. The aim of the amendments is to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations.

The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted.

Our thoughts

We are supportive of the IASB addressing this issue as it has become more prevalent since IFRS 16 Leases became effective for annual reporting periods beginning on or after January 1, 2019. We believe the amendments will reduce the diversity in practice that is currently being seen on accounting for income taxes related to leases and decommissioning obligations.

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Working from home offers many advantages, but it also raises some questions. For example, does it prevent or promote presenteeism?

Presenteeism is when someone is present at work, but not being productive. This lack of productivity can be due to any number of reasons, such as illness, personal problems or simply a lack of motivation.

Does teleworking reduce or increase presenteeism? There’s no black and white answer. This issue has been studied numerous times over the years, and the results vary. That said, most studies have found that the benefits of remote work arrangements outweigh the disadvantages, provided that certain conditions are met.

Currently, it’s hard to know what trends are attributable to telework, and which ones are due to the pandemic. Ideally, we’d be able to measure the effects of telework in optimal conditions, like when people are allowed to go into the office again and life gets back to normal. This would allow us to assess the differences between full-time and part-time telework. But some findings have already emerged from new studies and the sudden mass shift to working from home over the past several months.

1. Factors that boost performance

Time efficiencies

Some people are capitalizing on their lack of travel time to get more work done. If those extra minutes are spent getting organized or completing tasks, workers tend to feel calmer and are more able to focus on their professional responsibilities. Avoiding the stress of rush-hour traffic is also beneficial.

Flexible schedules

Working from home gives employees a little more flexibility in their schedules. For some, this translates into lower stress levels as the extra wiggle room helps them juggle responsibilities or fit activities into their day. They can also choose to work during hours when they’re naturally more productive.

Fewer interruptions

Many workers say they find it easier to concentrate at home, as there are fewer interruptions than in a busy workplace. However, this isn’t the case for those who have kids or lack a quiet work space in their home. The pandemic has forced these individuals to simply to the best they can.

Independence

While some workers need close supervision or regular feedback to do their jobs, many others become more creative and effective when they have the latitude to organize their time and choose their work methods on their own. These individuals feel less stressed and more proactive when they see that their manager and employer are confident in their abilities.

The right technologies

If companies have the right technologies for remote work, they’re already ahead of the game. Technological tools allow for better monitoring and collaboration between teams, even those working remotely. This, in turn, helps projects move forward with input from all team members.

2. Presenteeism risks when working from home

Performance pressure

Some people find that working remotely leads to added pressure. They feel they have to work harder, feel guilty about taking breaks, and are more likely to work when they’re sick. If an employer isn’t attentive to these risks, the situation could lead to unintended consequences. Employees may become less productive, experience greater fatigue and eventually burn out. Pandemic-related concerns only exacerbate this risk.

Disconnect between employees

While this concern is raised less often, the lack of contact between colleagues can drive presenteeism. It’s something employers should be concerned about. When workers find it harder to reach their colleagues and collaborate with them—for example, if they don’t have the right technology to do so—tasks may be completed at a much slower pace.

Lack of stimulation

A person’s personality can affect how they perform in a remote work situation and those who lack initiative may find themselves even less motivated due to the pandemic. Less frequent conversations with colleagues, a lack of supervision, reduced social contact and fewer opportunities to release stress through recreational activities—all this can sap a person’s drive and lead to presenteeism. Employers should keep their eyes and ears open and be attentive to employee wellbeing.

Too many meetings

Attending too many meetings can trigger presenteeism, particularly if the meetings have no clear objective, include too many people or aren’t used to make decisions. Unproductive meetings have become much more common now that people are working from home full-time, often because managers are worried about losing contact with their teams. By the same token, workers may be receiving too many messages to compensate for follow-ups previously done in person.

3. How to minimize the risk of presenteeism

Companies need a telework policy designed to make work-from-home arrangements as successful as possible for their organization. There’s no such thing as zero risk, but by taking into account the different aspects of telework and establishing clear guidelines for working remotely, you’ll be able to reap the benefits of this model while reducing the likelihood of presenteeism.

Show workers you care about their wellbeing

It’s in every employer’s best interest to implement measures that promote employee wellness, independence and development. This involves providing psychological and social support. Your organization only stands to gain by creating a corporate culture that supports wellbeing—and this is truer than ever now that teams are working from home. Preventing stress, loss of motivation and performance pressure can positively impact your business’ overall performance.

Set the tone for active listening and collaboration

It’s important to look out for warning signs and take the time to talk to your employees. When people are off-site, it can be difficult to know when things are turning south. That’s why it’s doubly important to listen attentively to what people say. Ask your employees how they’re doing and how they feel about the team dynamic, without inquiring about their private lives.

You’ll have to adjust your management style to the different personalities and needs of your employees. Some need clear instructions and guidance, while others thrive in a less rigid environment. It’s important to be sensitive to these differences. If employees perceive you as overly controlling and distrustful, you risk creating a tense atmosphere and deflating your employees. That’s the opposite of what you want.

While communication is essential, avoid scheduling too many meetings and requesting reports with strict deadlines. One of the advantages of teleworking is scheduling flexibility. Employees appreciate being able to decide which time of day they’re at their best to carry out their various tasks.

Establish clear terms

Employers should also prepare telework guidelines covering issues such as sick days, reachable hours (to distinguish work hours from off-work hours), report frequency and submission methods, and individual roles and responsibilities.

Modern technologies and training

New technologies are steadily making telework more efficient and reducing its drawbacks. Your company will probably have to invest in equipment upgrades and provide employees with training so that they can use your new tools securely while working from home. Conversely, outdated technology or a lack of training can lead to presenteeism. Don’t forget that your entire workforce needs training, including managers.

Your organization may need assistance from an external expert to successfully transition to remote work. A specialist can help you determine how to get teams working effectively while they’re off site and prepare a game plan that reflects your business needs.

Presenteeism can happen regardless of whether employees are working from the office or at home. But with the right conditions, the risk can be minimized. Remote work isn’t likely to be a passing trend. Most people expect it to persist, even once the pandemic is over. With the right preparations, your business can make the most of this practice.

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Stéphanie Nadeau
Senior Advisor | CRHA | Human resources consulting

Workplace health and wellness initiatives have been proven to boost organizational productivity. But how do you get started with them?

Should employers be concerned about their employees’ family problems and parenting issues? Worker productivity is something that matters to all employers. And yet, managers are often hesitant to talk to their teams about their family life because they worry it could be seen as overstepping. At the same time, we know there is a direct correlation between an employee’s state of mind—which is often influenced by their personal life—and their productivity at work.

Of course, it is not up to the employer to intervene in an employee’s family matters and personal problems. Instead, companies can take certain measures to make it easier for staff to reconcile their personal life with their professional responsibilities.

Studies have shown that when companies take steps to support work-life balance, workers are more motivated and satisfied, which increases their productivity and decreases absenteeism. Let’s take a look at the numbers. According to the Healthy Enterprises Group, for every dollar invested in health and wellness initiatives, companies get a return ranging from $1.50 to $3.80. Meanwhile, a Leger survey conducted in January 2019 for Concilivi found that companies that have the family-work balance seal of recognition enjoy a competitive advantage.

The costs associated with a high employee turnover rate, absenteeism and non-productivity are higher than most people realize. That is why it makes sense for companies to adopt a health and wellness program. In fact, there is a tool on the Ordre des conseillers en ressources humaines website that lets you calculate the cost of personnel turnover.

Implementing a workplace health and wellness program

Since piecemeal measures aren’t likely to have a big impact on workers, the benefits for your organization will also be marginal. Instead, you’re better off with a comprehensive approach to wellness in the workplace.

A comprehensive approach

Implementing a comprehensive workplace health and wellness isn’t the sole responsibility of the HR manager or the OHS committee. To be successful, the business owner and entire management team have to get behind the initiative. Ideally, the program should be included in the company’s strategic plan and considered a short- and long-term business objective.

Our firm has created a Workplace Health and Wellness (WHW) approach for businesses. Here is what is involved.

1. Appoint project leaders

Start by identifying a process owner to organize your initiatives. The process owner leads WHW Committee meetings, defines training needs for committee members, coordinates health and wellness activities, and performs follow-ups as needed.

Then appoint a management liaison. In addition to supporting the process owner, they will promote the initiative to the management team, mobilize the managers who have a key role to play and obtain approvals for the various initiatives.

Finally, set up an in-house WHW Committee tasked with selecting and implementing the program initiatives, while taking into account staff suggestions, available resources and the company’s priorities.

2. Conduct a survey

The purpose of the survey is to determine what improvements are needed to support employee wellbeing. The results will give your team a better understanding of your employees’ concerns and guide the company’s subsequent actions. The survey should cover four key topics that are known to have a positive impact on workplace health and wellness.

  • Lifestyle habits and stress management;
  • Work-life balance;
  • Management practices;
  • Work environment.

3. Analyze the results and develop an action plan

You may want to get help from an external firm for this step. A reliable partner will be able to provide you with an objective, efficient and confidential analysis of the survey results. The findings will let you see which health and wellness issues are most important to your employees. Then you will be able to establish clear objectives and develop an action plan to meet your team’s actual needs.

Introducing a cost-effective WHW program

According to a Concilivi study, 77% of organizations have managed to implement work-family life balance measures at low or no cost. Here are some things you can do that don’t require a big investment:

  • Offer flexible or reduced hours when a single parent has their children;
  • Allow employees to trade shifts to accommodate family needs;
  • Allow staff to work remotely or rearrange their schedule when kids are off school for in-service days or during snowstorms;
  • Let employees make up their hours if they need to take time off work and if their job doesn’t allow them to work from home;
  • Allow employees to split their vacation days so they can take days off at the same time as their family;
  • Distribute brochures of local resources for parents of teenagers;
  • Offer flexible schedules to employees who are natural caregivers;
  • Set up an Employee Assistance Program offering assistance with personal issues, support for those with physical/mental health problems, and access to telephone consultations with legal, financial and mental health professionals, etc.

If your workplace health and wellness program is well-designed and tailored to your company’s actual needs, it is sure to have a positive impact on your employees’ state of mind. This in turn will benefit your organization and employer brand. Our advisers can help you get started with a WHW program or strengthen your corporate wellness culture.

We have developed a comprehensive WHW program for businesses of all sizes and across all industries. Our firm is recognized as a provider, ambassador and member of the Healthy Enterprise movement. If you’d like to implement a WHW program for your organization, we have coaches certified by the Healthy Enterprises Group who can guide you. Please contact us if you have any questions.

11 May 2021  |  Written by :

Stéphanie Nadeau is a human resources expert at Raymond Chabot Grant Thornton. Contact her today!

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