Summer’s bright but there are clouds on the horizon

Summer’s bright but there are clouds on the horizon

Confidence is high among our business owners as they come to the end of the summer rested and ready to tackle the significant challenges ahead.

Our Summer Pulse Check – full results here – told us that business owners were rested and recharged but there is growing unease over rising input prices, port disruptions and employment issues.

Confidence is extremely high but there’s no illusion concerning what’s ahead. Results showed a rise in problems associated with working capital, including more late payers, input price rises and disrupted supply chains.

Delays at the port are a major cause of stress along with employment issues and lack of sales but business owners remain buoyant, with plans and ideas ready to take them forward.

Businesses have steeled themselves to constantly expect the unexpected, adapting and changing their business operations to manage the shifting sands of COVID19 alert level changes.

We were a little surprised that confidence remains so high as people were responding to the Pulse Check as Auckland went to Alert Level Three but having survived 2020 and with the vaccination programme about to start perhaps the confidence of Kiwi business owners comes from knowing they are resilient and can adapt to most challenges that come their way.

Confidence boosters included skilled Kiwis coming home as the struggle to fill jobs continues and high on the wish list are more customers and better cash flow. Steps to reduce costs appears to have helped to ease the pressure.

When asked what would help get through 2021, 43% of business owners said a chat with business owners like themselves or some specialist advice would do the job – and that, of course, is what we are here to do. We exist to support small to medium businesses and their owners through the calm and the storms and the insights you share through the Pulse Check allows us to make sure that support and advice is relevant and timely for you and your business. Thank you for taking part – our next check will be in the Autumn – and in the meantime, remember we’re here to help.

The Alternative Board conducted the Summer Pulse Check with 266 members and associates between February 9 – February 16 2021 with a confidence level of 90% and a 5% margin of error.

Hands-on business at the heart of community support

Hands-on business at the heart of community support

‘The heart of the economy’ – that’s the description frequently applied to New Zealand’s small businesses but what’s often overlooked is how those same businesses are at the heart of their communities too.

It’s been another tough week for everyone and many small businesses will again be feeling the pinch but, despite the return of familiar stressors, those businesses will quietly carry on supporting the many charities, not-for-profits, community and sports groups that play such a critical role in our society.

With that in mind, and on behalf of The Alternative Board, I’d like to give a shout-out to the thousands of business owners around the country who quietly and unassumingly help out the organisations around them. Sometimes this help comes in the form of sponsorship, other times it is support in kind, with donations of goods or services and it may even – in cash-strapped times – be offered as practical, hands-on support, fixing fences or painting club rooms.

The big companies often make a big noise about their community support and we see their names in lights attached to good causes – and it is absolutely right that they are recognised for what they do.

Small business support tends to be given quietly, slipping in under the radar but is just as critical. I recently asked members of a Northland networking group if anyone supported local causes and 90% of the room said yes – and did so with a big smile.

There is an incredible amount of support from small and medium sized businesses that is as important as that given by the big named sponsors and, at The Alternative Board, we’d like to acknowledge and congratulate all the business owners for their efforts – efforts that often span decades and countless contributions.

It makes a difference to the values of our community, the way we give back demonstrates our commitment to those around us. The support we give brings our values to life, makes a difference to society and to our health and wellbeing.

This year, I’ve sponsored Northland Rugby’s Taniwha Supporters Club and have been truly heartened by the response both from the club and from fellow business owners who have shared with me the causes they support – but always forget to mention. It seems that, as is the way with small businesses, they quietly get on with the job, so if your business supports a local cause, club or charity, let me know so I can give you a shout-out and a heart-felt thank you on behalf of everyone you help.

Ready to get back to business with the Pulse Check

Ready to get back to business with the Pulse Check

It’s time to get back to business and discover how you are getting on. Our February Pulse Check – the first one of the year – is now live and aims to track the progress of small to medium businesses and their owners throughout the year.

The thinking behind our quarterly Pulse Check is simple — you keep your business going and we are here to keep you, the business owner, on track, motivated and equipped to cope in our current times.

Your insights ensure we continue to have the right resources to help you and, by listening to and understanding your perspectives, we can better support your needs. We also make your views heard by sharing your perspective with Government and policy makers who have shown a keen interest in what you have to say.

The link to the survey is here so please, tell us how you are, how you’re managing, and how you’re feeling about the future.  As a thank you, when you’ve finished the short survey — it takes just a few minutes — you can enter the draw for a complimentary business coaching session.

You can access results from last year’s Pulse Checks here on our website.

Hot tips to keep your business cool

Hot tips to keep your business cool

Heading into the last long weekend of summer we were all rattled by the COVID19 cases that popped up in Northland and North Auckland. We’ve not been oblivious to the ravages of the pandemic elsewhere in the world but we have managed to slide through summer in a fairly relaxed ‘must-remember-to-scan-in’ style.

The twin spectres of lockdowns and alert level changes loomed large as the media briefings restarted – and for many businesses, a rising sense of panic edged out the last of the summer vibes. The virus will be with us for a long time yet and it is inevitable we will have to continue adapting to rapid change –  so what as business owners can we do to stay cool when the COVID temperature rises?

As with any assessment of risks and issues we have to be able to deal with anything and everything so my main tip would be to make sure you are prepared for an outbreak. Start by taking another long, hard look at your business. You will, in the first weeks after the pandemic was declared, have adapted to operating in a crisis. Maybe you invested in technology, perhaps you reorganised your operation entirely – it was hard to do but you made it.

We’ve had the luxury of some pandemic ‘down time’ but that won’t always be the case, so in preparing for change, stop and think how an outbreak will affect you and those around you.

  • How are your cash reserves?
  • Will you need to make that rapid switch to digital again or have you embedded processes that allow you to move seamlessly from one method of operation to another?
  • Have you got to grips with managing remote teams for when we find ourselves back in ‘working from home’ mode?
  • What flexibility have you built in for staff members who have children or other caring responsibilities?
  • How will you keep your customers and staff safe during alert level changes?
  • What communications processes do you have in place so your stakeholders and communities can stay connected and informed?
  • How will you counter misinformation?
  • How will you manage your business if you find yourself – or a staff member – at the centre of an outbreak?
  • Have you reviewed your sick leave policy to make sure staff are cared for?

You will have asked all of these questions before but during ongoing change we have to ask – and answer – the same questions time and again to make sure we are ready to respond when the occasion demands.

The next tip is to build people’s confidence in your COVID risk management – set an example and let them see you take your responsibilities seriously. That means having your business QR code throughout your premises – one on the front door, one on the front desk, by the bathrooms, in the break room – if there’s a flat surface to be had slap a code on there and get your people using it. For those without phones, set up easy sign in stations that feature a prominent date and time column. It means looking at your health and safety plan and introducing processes that will cover different scenarios and understanding your operational risks from supply to order or service completion.

And my last tip is this – there is no ‘business as usual’. Business is and will be, most unusual for a considerable time to come, so expect changes and stay cool when pandemic problems arise.

Managing a business boom

Managing a business boom

All successful businesses want to grow. However, rapid growth can be a mixed blessing, and unbridled growth can quickly become a burden with bottlenecks and organisational issues flaring – so how do you manage a business boom?

Growth brings new challenges across all areas of your business from staff to systems, to quality control, customer service, fixed costs, labour productivity, and to cash being absorbed by working capital.

Overtrading is a common cause of receivership after a recession as working capital is depleted –and fast growth means businesses simply run out of cash. Construction companies commonly fail because they take on too much work, are spread too thinly, leading to quality defects, weak project management and timetables slipping behind. Performance and liquidated damages claims soon follow.

Hence one of the most common outcomes if you are growing fast is the need to refinance with your bank, to provide facility headroom and liquidity to support your growth, as for many small businesses attracting new equity is not a viable or quick alternative.

While most companies plan and strive for growth, not all are adequately prepared to manage it when it happens unexpectedly and hastily. Fortunately, there are things you can do before you find yourself swimming in more business than you had ever anticipated.

Firstly, be certain that your company is not undergoing seasonal or one-time-only growth – in our volatile COVID world, expect the unexpected as a downturn or new lockdown could happen anytime.

Some questions to ask include:-

  • Do I have the necessary capital (equity and term debt) to finance my growth?
  • Do I have surplus assets that I could turn into cash if need be? This may extend to securing or re-mortgaging your house.
  • Am I expanding too quickly? Is it profitable gross margin business or is it growth for growth’s sake?
  • Am I hiring too fast? Have I got the right people on the bus, and is our labour productivity being maintained?
  • Am I collecting my receivables fast enough?
  • Is my inventory and stock turn in line with my growth?
  • Is my production line efficient? Are my input costs competitive, and is our supply chain secure?
  • Is our quality control and customer service falling?
  • Are our fixed costs or chassis right to run the engine?
  • Lastly, does my management team have the right competencies to handle our company’s growth? Where are our holes and blind spots?

The purpose of these questions is to diagnose potential weaknesses, where the cash is going or leaking and to gain more control over the key aspects of your business that impact cashflow.

A source and application of funds on your balance sheet can quickly tell you where the cash has gone – or is going – and profitability trend analysis is a vital component of your financial analysis. Trend is your friend.  Display your income statement in four different ways,

• $ for multiple periods / rolling twelve months
• Averages over the last four or five periods
• Common size expenses as a % of sales
• Dollars/unit e.g. in a restaurant $/customer or $/table or in a food business $/kg.

Common sizing quickly spots expenses that have changed – and highlights questions to be asked, the main question being why the change?

Understand your breakeven position and current headroom. Explore a range of scenarios that forecast your cashflow and future cash requirements when you hit targets, fall well short or knock everything out of the park.

Knowing this, you can look at your current financial situation and assess if you can make improvements. You may be able to get additional financing for working capital, restructure your debt or convert unused assets into cash.

Carefully consider how each situation would impact your business numbers in terms of employees, costs, resources, and so on. Knowing your threshold before a jump in growth occurs will enable you to recognise early on when you’re reaching capacity and allow you to react with agility because you already have a plan in place.

Invest in a well-built simple financial model that can provide these answers quickly. You’ll be thankful you’ve done it should your business suddenly take off.

Demonstrating strong management of receivables, stock, and payables plus control of overhead costs is key to gaining a bank’s confidence in your management team. Be particularly careful about maintaining cost controls during growth spurts where businesses often go on a spending binge.

Communicate early with your bank. Banks hate vacuums, and too many customers leave it too late to address refinancing needs. Understand banks like to be repaid and high growth companies usually need more debt support and are therefore regarded as risky.

You can also look for alternatives to conventional debt financing. For example, you may be able to negotiate better payment schedules with suppliers, or look at leasing vs. buying assets or asset financing for vehicles or plant, or maybe you can consolidate a number of loans to simplify things.

The key is to get the refinancing you need. Longer term debt with reduced monthly payments can be achieved by spreading your payments over a longer period.

After analysing your company, you will be better able to examine your ability to repay debt. A refinancing application is very similar to a normal financing application. In both cases, the lender establishes certain debt repayment conditions, which you must be able to fulfil. If you cannot demonstrate your repayment ability, the lender will not assume the risk alone.

New legal requirements imposed on Banks mean they require comprehensive business plans, strategy, and a credit story supported by both historic and forecast financial scenarios. This takes time and expertise to prepare. If it is not in your management team’s skillset – get independent advice.

In all cases you need to demonstrate:-
• Your management are competent and experienced
• The key risks are managed and mitigated
• That you have sufficient working capital and equity in the business
• That you can clearly demonstrate your ability to repay the loan/s

In conclusion, extreme growth is a good problem to have so long as you’re prepared for it. Combined with simple management strategies such as benchmarking stress points, empowering employees, optimising efficiency, and leveraging technology to create scale will put you in a strong position when your company finds itself on a hot streak.

Avoid the urge to rush – don’t ruin your business engine

Avoid the urge to rush – don’t ruin your business engine

It’s a horrible feeling. That sudden realisation that the wrong fuel has gone into the car. I’ve done it myself – in fact, I did it the other day. I made the fatal mistake of putting petrol in my diesel vehicle, but fortunately I realised what I had done before starting the engine. From what I understand it is not an uncommon mistake, particularly for those that regularly swap between diesel and petrol cars.

After several phone calls I realised that the only thing I could do was to engage a ‘fuel removal specialist’. Although I had a busy day in front of me I had no choice but to wait for two hours at the filling station for the expert to arrive so he could suck the petrol out of the tank and thus avoid serious damage to my engine. Not only did this cost two hours of my time, it cost $275.00 for the service. A costly experience, but a small cost in comparison to what I would have had to pay for engine repairs, had I started my engine.

On reflection, there are two reasons why this incident happened; I was rushing and I wasn’t truly present in the moment.

Relating this experience to business, how often do employers make a rash decision because they are rushing and not present in the moment? Maybe they make a poor hiring decision and promote the ‘not quite suitable’ person from within the company, or employ an external candidate even when their gut feeling says they shouldn’t – but they do so anyway because it seems the easiest option and they just want to get it done.

I have made this mistake too and it is one that I always regretted. Like the fuel scenario, hiring the wrong person can be detrimental to business – much like putting petrol in a diesel engine. Not only can this lead to a financial cost to the business, it can also undermine the culture within the team. In this example, your investment in an effective recruitment process to ensure you have the right people on board will pay significant dividends over time and will more than compensate for the time and effort you put in.

We live in a busy, sometimes chaotic world, so we need to raise our awareness around this propensity to rush. Rushing affects our ability to be present, it increases our stress levels, it can lead to mistakes and it can inhibit our ability to make effective business decisions. So take your time – and don’t ruin your business engine.

The Alternative Board - Owners