Many business owners in New Zealand, who may have managed to keep their businesses afloat during the pandemic with the support of government subsidies, are now struggling to operate in today’s unprecedented economic climate. Businesses in New Zealand are stretched thin, facing more financial uncertainty than ever, coming straight off the back of a pandemic that has already depleted reserves.
When resources become stretched, revenue generation and cost-cutting exercises take priority, stifling innovative thinking and business growth. As entrepreneurs who risk big to win big, operating a business in survival mode for extended periods of time is not a comfortable nor healthy predicament to find yourself in.
This article deep dives into the key issues facing New Zealand businesses in 2022, the impact on cash flow and solutions to help you get your business back on track, to get it out of survival mode and into growth mode.
The COVID-19 pandemic and its effect on the economy, businesses, and people have been unprecedented. During the pandemic, many businesses experienced a decline in revenue and invested time and resources into changing workflows quickly to respond to remote working requirements. But while businesses were applauded for surviving through the pandemic, the longer-term effects of the pandemic and other world-wide economic and political factors are still unravelling, and business owners are now facing a whole raft of issues that are compounding the impact on business cash flow.
ISSUE 1
The result of widespread labour shortages is that the competition for top talent is high and employees are commanding higher salaries. The Consumer Price Index, which measures the change in prices paid by consumers for goods and services, is currently 7.3%, highlighting the increased costs businesses are incurring to pay for goods or services required to run their business. While this is the average inflation figure, for some businesses, costs are rising even faster than this where they have a high dependency on such things as transport and fuel, where costs have risen exponentially.
Business owners must think about innovative solutions to combat reduced profit margins. Your business needs to have a reliable Cash Flow Forecast in place to predict and compensate for increased costs.
Our Business Advisory services can help you manage increased costs.
ISSUE 2
Sales are falling as businesses battle to implement price increases without losing customers. Consumers have tighter budgets to spend on products or services due to higher living costs.
With tighter budgets too, comes an inability to pay in a timely manner, which increases debtor days for businesses even once services have been performed or goods have been delivered. This has a lag effect on a business’s ability to keep up with its own expenditure commitments as they fall due.
Think about new opportunities to deliver value to your customers by revisiting your business strategy. Prepare or adjust Cash Flow Forecasts to be more realistic with trends you are seeing in the market and in your business. Engage in regular Tax Planning to make sure you are adjusting your tax payments for fluctuations in revenue and profit. Explore whether accounting software can assist you in getting paid faster.
ISSUE 3
With the minimum sick leave entitlement for employees increasing from 5 days to 10 days, business owners need to make provisions for higher sick leave balances and payments. With more staff away sick and for longer periods of time, productivity and therefore capacity for revenue-generating activity are diminished. Business owners are struggling to manage staff absences, resulting in prolonged production and delivery times or the inability to offer services in a timely manner.
Embrace flexible working options, refine processes and look to adopt technology that creates a seamless workflow regardless of whether your team are onsite or at home. Budget and forecast for higher sick leave provisions and explore alternative business strategies to reduce business interruptions caused by staff absences.
ISSUE 4
Remote working is here to stay, with businesses needing to comply with isolation requirements for staff that are sick and employees seeking workplace flexibility as a top priority when searching for employment opportunities.
Businesses need to adapt to these new ways of working, whether that means implementing permanent working from home policies, investing in technology, changing processes and procedures or upskilling your team to enable them to deliver services differently. Whatever the changes required, implementing them all takes time and resources away from revenue-generating activity.
ISSUE 5
COVID-19 lockdowns and restrictions meant many business transactions shifted to digital as a means of survival. The effect of this is that the expectations of customers regarding how they purchase goods or how services are delivered have shifted, with a preference for digital communication and delivery challenging traditional business models built on face-to-face contact.
Businesses should look to improve their online service, presence, and customer experience by having effective digital stores, websites, apps, and social media, as well as focusing on their digital marketing strategies. Those who adapted to these changes during the pandemic not only survived, but they thrived and grew their businesses.
ISSUE 6
A tightening of banking legislation combined with the poor profitability and depleted reserves of many businesses means some business owners are struggling to obtain much needed outside funding. High and still rising interest rates are also pushing up repayments and therefore further restricting lending.
Making sure your business and personal affairs are structured optimally will help you take advantage of interest deductibility provisions and enable you to explore refinancing options. Taking on another shareholder may be another way to source outside funding, which could also aid future business growth.
ISSUE 7
Navigating ever-changing COVID-19 related health and safety requirements has become an onerous task for business owners, coupled with already complex employment legislation and HR practices. Ensuring that Health and Safety documentation is up-to-date and adequately considers the new risks that COVID-19 has created in the workplace, together with implementing and communicating changes in health and safety protocols to staff and clients to ensure the safety of your team, takes time and resources away from revenue-generating and client-facing activities.
Business owners should consider outsourcing key business functions if they do not have the skill and expertise in-house or should look at ways to streamline processes to free up capacity for compliance activities to be given the time and attention they require.
Our Business Advisory services can help you make the right decisions to get your business into a profitable position.
ISSUE 8
During the pandemic, many businesses were forced to put aside any non-urgent business development initiatives to focus on revenue-generating activities required to ensure business survival. This approach however, limits a business’s ability to be innovative and grow, as well as its ability to retain both high-performing staff and quality clients who want a business that is proactive and progressive.
Focus on incremental process improvements and low-cost initiatives that can be actioned quickly in order to maintain momentum and keep your team engaged. Look at how you can use strategic digital marketing to help grow your business.
Our Business Advisory services can help you to create clear business goals focused on growth and help you identify steps to take so that you can achieve them.
Seasoned business owners understand the need to keep cash reserves aside or bank facilities available for when cash flow troughs, either due to forecasted or unforeseen business events that arise. However, reserves set aside to cover normal business ebbs and flows have been depleted over the last few years just to keep businesses afloat during the pandemic. No longer able to depend on government subsidies to bolster business cash flow, business owners are now feeling the true impact of the pandemic. They find themselves with depleted reserves, leaving them ill-equipped to navigate the ongoing fluctuations in the global economic and political landscape.
Business owners are struggling more than ever to maintain positive cash flow, profitability, and a healthy balance sheet. This leaves many businesses exposed and in a very vulnerable state, with some risking insolvency and being forced to liquidate. Being able to pay your debts as they fall due is a fundamental responsibility of company directors. Getting your business back on track so that you can focus your attention on growth-focused activity is fundamental to the future sustainability of businesses in New Zealand.
SOLUTION 1
Having a robust Cash Flow Forecast in place will help you avoid unnecessary surprises. Create a Cash Flow Forecast that factors in fluctuating revenue, costs, tax, capital expenditure and other factors that may influence your cash flow position.
Use your Cash Flow Forecast to analyse and weigh up different options and scenarios when making decisions to ensure you make the right cost and price-related decisions to enable your business to be profitable. Plan to seek outside funding ahead of when you need it. Use your Forecast to understand the impact of taking on a shareholder versus bank lending. Know when to seek help.
Compare actual results to forecasted figures to make yourself accountable and keep your business on the right track. Pivot business activities quickly when results are not being achieved.
If you need help creating a Cash Flow Forecast, our Business Advisory team can help. We work with business owners to make decisions about whether to finance or lease, whether to bring on another shareholder or to apply for business lending, and to advise them of how much they need to save for tax. We can advise you on ways to improve your business performance so that you can focus on implementing innovative initiatives that will propel your business forward.
Business Advisory | Cash Flow Forecasting | Business Structuring & Tax Planning
SOLUTION 2
Utilising more features of your existing software is a cost-efficient way to increase efficiency. For example, utilising electronic invoicing options or automated payment reminders in your accounting software can help you get paid faster, creating efficiency in your debt collection process.
Free up capacity within your team by getting rid of tasks that create a duplication of information and resources.
Higher labour costs put businesses at risk of losing the ability to deliver quality and service to customers. If you are tight on capacity, consider implementing new systems and software that could automate, streamline and increase the efficiency and productivity of your current team.
If you need help to automate and streamline your processes, our team of Process Optimisation experts can help you assess your current processes and identify ways you could benefit from process or system improvements to maximise efficiency.
SOLUTION 3
When cash flow is tight, marketing is often the first area a business looks at to cut costs. However, cutting off your gateway to new leads has a lag effect on your revenue in the long term. Look at innovative approaches to your marketing initiatives that could help you attract the right target clients whilst keeping your costs to a minimum. With digital marketing channels taking centre stage during the age of remote working and lockdowns, curating your online presence, planning your customer journey, and creating an online sales funnel by investing in digital marketing can be a lower-cost and more effective alternative to more traditional marketing channels and may increase your customer conversion rate.
Your website represents your business in the digital world. Having a well-designed website with a good user experience and interface, together with a well-executed strategy, will give your customers a good impression of your business, helping you to build trust, develop customer relationships, and drive sales.
Creating content that is useful to your target audience will not only help you convert leads into customers but can also help you with client retention. Choosing the right online medium to reach your target audience is key, but whether it’s email marketing or social media, having a content strategy in place is also key.
Being active on social media platforms helps your business build a reputation and relationship with your customers online, with the advantages of shareability and global reach, creating a community of customers that you can segment and connect with 24/7 in a cost-effective way. Utilising Search Engine Optimisation strategies when writing blogs and website content helps your target customers find you.
Understanding how your website and strategic digital marketing campaigns are performing is key to knowing what steps to take next.
Digital Transformation is a full package service we offer that will get your business started in the digital world online, enabling you to capitalise on opportunities created by the pandemic and combat the effects on cash flow. If you need help creating an effective website and implementing strategic digital marketing initiatives, our Digital Transformation team can assist.
Businesses in New Zealand are facing a variety of issues that impact cash flow. We have listed suggestions and solutions to help businesses survive, grow and be profitable. It is important that a Business Advisory expert should have a full overview of your business situation so that concise and effective advice can be given based on facts.
Each business is unique and will require a different mix of services to enable business owners to take the right actions to find effective solutions. Identifying the actual underlying problems your business is facing is the first step in being able to make positive changes. Making decisions and implementing business strategies with the help of an expert gives you a better chance at turning those issues into opportunities so that your business can succeed.
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