Changes to the Business Finance Guarantee Scheme

Changes to the Business Finance Guarantee Scheme

Gordon Stuart takes a look at the recent changes made to the government’s Business Finance Guarantee Scheme.

The eligibility criteria for a Business Finance Guarantee Scheme (BFGS) loan have been loosened from the initial terms detailed back in April. The maximum amount of the loan is now up to $5m. Note the first version announced by the Government in April provided $6.25b but was largely unsuccessful with only $150m taken up by 780 customers.

The BFGS loan use criteria have been widened, so your business (which can be a company, sole trader, partnership or trust) can use credit for (a) working capital (b) funding capital assets and/or (c) projects related to responding to, or recovering from, the impacts of COVID-19. Previously it was for working capital only.

I expect take up will be better this time towards the end of the year, as forecasting hopefully becomes easier.

Recessions since 1987 have generally reduced business revenues and cash available for debt servicing. This has resulted in longer debt payback thereby creating term debt needs.

To be eligible to apply for a BFGS loan your business must:

  • Be a New Zealand based business
  • Have annual revenue of $200 million or less in its most recently completed financial year
  • Not be on your bank’s credit watchlist as at 31 January 2020 (for retail customers) or 30 September 2019 (for non-retail customers)
  • Not be a residential or commercial property developer or investor, or a local authority or council-controlled organisation

The Participating banks ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac are under pressure from the Reserve Bank to lend to their capped amount. However, their requirements for financial forecasts will still be tough. The better the quality of information you submit, the higher the likely success rate and the quicker the loans can be processed.

Here are some key points worth noting:

  • Under the scheme, the government will guarantee 80% of the risk associated with eligible loans.
  • The interest rate charged is lower, reflecting the Government’s 80% share of risk and should be (c.2.5% – 3%), up to 5 years and up to $5m. For Regulatory Capital Purposes the Government is zero risk weighted. The benefit borrowers receive is a lower interest rate.
  • If your business defaults, your bank will follow its normal process to recover the debt. If the debt can’t be recovered, the bank can claim 80% of any shortfall from the Crown. Note that the Government guarantee does not limit your business’s liability for the debt
  • For borrowers that have fixed rate lending already in place, consider break costs if you refinance existing fixed rate debt via a BFGS loan early.
  • The BFGS loan needs to be repaid over 5 years but can be repaid earlier at no break cost.
  • This scheme is also available to clients who are already on COVID-19 relief packages provided by the banks or have received the wage subsidy
  • The Scheme is open for applications until 31 December 2020.

Exclusions:

  • Cannot be on the bank’s credit watch-list at 30 September 2019 and 31 January 2020.
  • Cannot be a residential or commercial property developer or investor or a local authority or council-controlled organisation.
  • Cannot be used to fund dividends – note:- there is a guaranteeing group exclusion that you should discuss with your Bank.
  • Cannot be on lent outside the business.
  • Cannot re-finance or repay more than 20% of the business’s existing term debt (term debt only). Note – there appears to be an exclusion if debt facilities mature before 31 December 2020. Discuss with your bank.

Businesses do not have to draw down all existing facilities before applying for a BFGS loan as previously required in April.

As part of your bank’s approval process for a loan under the scheme, your bank decides:

  • The loan amount (up to $5 million under one or more loans), term (up to five years) and the interest rate
  • What businesses should provide to demonstrate ability to repay the debt, such as a cashflow forecast, business plan and details of assets
  • Whether it will rely on existing or require new security and guarantees to support the debt (this is not a Government requirement)
  • Whether it will approve or decline a loan under the scheme.

Finally to reiterate two common misunderstandings.

Is the Government guaranteeing the loan?

No. You will need to provide security for the loan as you would normally. The Government and participating banks have agreed to share the risk in case of default only.

What kind of security do I need to provide for the loan?

While banks remain in control of their own lending decisions there is no Government expectation or requirement that lending requires a general security agreement or personal guarantee. Note – Banks will require security! Their job is to take minimal or no risk for maximum return.

Brave Small Businesses Buck The Trend

Brave Small Businesses Buck The Trend

Confident and determined to get through – that’s the verdict from members this August when we checked in to see how you were all doing

Contrary to ongoing ‘doom-and-gloom’ commentary, there’s a strong, steady pulse beating in our small business sector with business owners like you displaying remarkable resilience, high confidence and a pragmatic approach to the challenges of COVID19.

Our August Business Pulse revealed 95% of small-to-medium size enterprises are confident they’ll get through.  More than a third of small businesses have benefited from government support with only a small percentage anticipating job losses once the wage subsidy ends. Banks have been understanding, helping where necessary or carrying on with business as usual, and jobs are holding steady.

Sales and orders remain buoyant with supply lines and international transportation links for exporters seemingly intact.

“Given we are awash with negative commentary, the results were heartening” says managing director  Stephen James. “I think, in part, the focus has been on the hit taken by more visible sectors like tourism and hospitality but our members are involved in many other activities and their perspective hasn’t necessarily been reflected to date.

“The strong Pulse Check was even more remarkable as the change to Alert Level Three for Auckland and Alert Level Two for the rest of New Zealand occurred during the consultation period.”

On the down side, mainstream media is reducing confidence levels and the wish-list of things that would help business owners get through the remainder of 2020 includes more customers, more government support – and a rest, as business owners report they’re feeling exhausted.

“It is understandable that business owners are exhausted. Although confidence is high and business steady, they’ve worked extremely hard to achieve stability in our tumultuous times. I would anticipate this pace will continue as they adapt and adopt new approaches or innovations. While things may change and outlooks darken, business owners are pragmatic in their determination – the Kiwi ‘can do’ approach to adversity and an unwillingness to be beaten is certainly in evidence. They are ‘COVID courageous’ and I think their confidence level reflects this.”

Keeping in mind our members and associates are primarily involved in industries that make, supply, service, fix, invent or build things and the results may reflect that this group has been under-represented to date, with focus falling on hospitality, retail and tourism in other surveys.

Throughout all the upheaval we’ve seen in 2020, one constant has been the support of The Alternative Board, for and among its members. The majority of members who took part in August’s survey said they had looked to and received support from us and, rest assured, we continue to make sure we can deliver the support and resources you need.

The August Pulse Check survey of 275 of its members and associates was conducted between August 7 – 19 with a confidence level of 90% and a 5% margin of error.  You can download a copy of the results in full here and September’s Pulse Check will be opened to members on September 9 when we’ll check in to see how things are going.

The Alternative Board conducted the August Pulse Check survey of 275 of its members and associates between August 7 – 19 with a confidence level of 90% and a 5% margin of error.

We’ve Done It Before – We Can Do It Again

We’ve Done It Before – We Can Do It Again

A sudden slip into Alert Level Three, the blast of the emergency ‘COVID’ warning through our phones and once again we’re into the balancing act of keeping our businesses moving in exceptional circumstances.

Last month our Pulse Check results told us how adaptable and flexible New Zealand’s small business are, with business owners altering operations and changing practice in order to survive the challenges that 2020 has thrown at us all. Just as we have rolled out our August Pulse Check – which you can access here if you would like to participate – the beat has changed again and, in Auckland, we are facing at least three days at Level 3, probably more, with the rest of New Zealand parked up at Level 2 for the time being.

We asked our Auckland team for their thoughts on the current situation and their advice was simple — we’ve been here before, rely on past experience and know that it will pass.

The Alternative Board’s managing director Stephen James said: “Knowing it will pass, spend some time addressing a few scenarios. For example, if Level 3 lasts, as announced, for three days what do you need to do? Or, if it remains in place for two weeks or if Level 4 is declared and we have full lockdown for an indefinite period — what then? Develop plans of action for each scenario and communicate these to your staff and stakeholders.”

Scenarios are very helpful when it comes to managing uncertainty as Alfredo Puche explained in his recent blog post. Other helpful advice is to be found in Gordon Stuart’s tips on surviving a recession and Karen Van Eden’s thought-provoking piece on thriving in times of uncertainty.

Whatever your approach, remember that The Alternative Board is here to help you, the business owner, manage and grow your business regardless of circumstances — and we are all here, ready to help you.

As Karen says: “We’ve done this before – together we can do it again. Stay safe, stay well.”

Kiwi Businesses Ready To Reinvent The Future

Kiwi Businesses Ready To Reinvent The Future

Pulse check shows members are tackling the challenges of COVID19 head-on

We asked you how you were doing and you told us loud and clear — New Zealand’s small businesses are bravely facing the future, investing in growth and ready to reinvent themselves if necessary.

Our July Pulse Check revealed you are confident you’ll make it through — even though for some it has been touch and go.

Many of you are ready to reinvent yourselves if necessary, increasing spending on marketing, digital solutions and additional staff but you are borrowing more.

Your responses reflect what we’ve been hearing from our members  — that it has been a very challenging time. What was surprising was the degree of flexibility and willingness to change.

There was no doubt that the coming months will be challenging but finding innovative solutions and meeting the challenges head-on are at the forefront of your thinking.

Government support has been the saviour for many and we were pleased to see that the majority of our members looked to The Alternative Board for help and advice.

The health and viability of our business owners is at the heart of all we do, which is why we feel this regular Pulse check is critical. Listening to you in this way means we can ensure you have the right support and advice you need not just to get through the disruption of COVID19 but to thrive and grow into the future.

Running a business in ‘ordinary’ times is demanding but it is even more so in these extraordinary times. We know members round the country have been working nonstop and, after many months, you have started to feel the effects with many business owners saying they need a rest. Unfortunately, any respite is out of reach right now as you strive to meet the many challenges we face so I would urge you to continue to look for support from your board and facilitator as the months progress and look after your physical and mental well-being.

The Pulse Check was conducted during July across its nationwide network of members and boards and we will be checking in with you again in August. In the meantime, a heartfelt thanks from all of us at The Alternative Board on behalf of all the Kiwis you work with, for and alongside – small to medium enterprises are the heartbeat of our economy and your drive and tenacity is incredible. Thank you – and remember we’re always on hand to help.

The Alternative Board conducted the Pulse Check survey of 262 of its members and associates between July 7 – 19 with a confidence level of 90% and a 5% margin of error.

Working with ‘What If’ – Scenario Planning for Stronger Business

Working with ‘What If’ – Scenario Planning for Stronger Business

Many businesses just go with the flow but what happens when unpredicted things happen?

First reactions are often fear and uncertainty, then frustration as worrying questions come thick and fast. What is going to happen? How will I be able to continue trading and working? What will happen to my business and employees?

These feelings and questions are normal in the first moments of shock but it is possible to mitigate the effects of market upheaval for both the business and its people.

A business without goals – and plans to achieve those goals – is like playing football without knowing where the goal is. You can play well and have fun and even have a false expectation about getting good results but are these results the right ones? Do they improve the business situation you’re in or your position in the market?

The first step is to set goals and create a plan to achieve those goals. Then comes the tricky part: how do I set my goals if I don’t know what is going to happen next?

As Peter Drucker said, “You cannot predict the future, but you can create it” and the solution is to create scenarios. At minimum you should create two scenarios, the worst case and the probable case. You could add the best case if you want to.

Creating a scenario forces you to place yourself in a specific context, which can be out of normality, or focus on extreme conditions. This may create uncertainty or even fear but it also provides clarity on what you could do in a particular situation in order to achieve your goals. Once your goals for each scenario are clear, then you need to make a plan for each scenario and its set of goals.

Working with scenarios helps you to create certainty in a world of uncertainty. It allows you to be prepared for a wide range of possibilities, even those outside the scope of your imagined scenarios because, once the exercise is done, you have a broader view of the operating environment.

The ensuing reality will be different to the scenarios you created but two considerations here: the reality will generally fall somewhere between the worst and best case scenarios  and, most likely, will be closest to the probable scenario you created – and this is not coincidence. If you follow a plan well, you will most likely reach the goals you forecasted.

If market forces make it impossible to achieve a goal, having planned a series of them gives you an advantage and a more positive position. You will not be shocked or unprepared. You will be ready to take action, drawing on your thinking from the various scenarios considered or, in the worst case, you will be able to set new goals and create a new plan.

How do you create good scenarios? Work with your team, do it with your coach or get the help of your board. You will get more ideas and will cover more variables. Two heads are better than one. The resulting collaboration will be a more robust and certain position for you and your business while your team will recognise your leadership and be more engaged in working towards your goals.

Help us take the pulse – tell us how you are

Help us take the pulse – tell us how you are

Everyone is talking about New Zealand’s small businesses – but we want to listen. We want to check the pulse and see how everyone in this vital sector is getting through.

As you know, here at The Alternative Board we are dedicated to helping small-to-medium size businesses and the health and viability of our sector is at the heart of all we do. We believe it is important to find out what our sector thinks — and needs — to stay on track in 2020 and beyond. With your input we will be able to bring your concerns to Government and tackle some of the issues raised by all of you during our board meetings and coaching sessions.

We want to hear from you direct, so please take five minutes to share your thoughts on how small-to-medium businesses like yours are managing through COVID19, what’s changed for you and what support or help you might need.

You can access the survey here – https://bit.ly/PulseCheckJuly – and, as a thank you for your time, you can enter a draw for a complimentary business coaching session once you’ve shared your views.

When we’ve heard from everyone we will share the results with you, Government and the wider community to develop a better understanding of what’s needed now – and what’s needed next. We will be running the survey regularly so we can keep listening and respond appropriately to the needs that arise.

The survey is open until 19 July 2020 so please take part here https://bit.ly/PulseCheckJuly – and make your voice heard.

The Changing Face of Company Credit Risk Management in the Wake of Covid-19

The Changing Face of Company Credit Risk Management in the Wake of Covid-19

As we move back down through the Covid-19 alert levels and more businesses commence trading, it is clear that it will not be ‘business as usual’ for most businesses for some time. There may well be a small short surge as businesses open, but at present most business owners have little confidence in predicted business and public confidence beyond that period, as the impact of restructuring and redundancies take hold.

This raises the question of what steps business owners should now be taking to assess the risk of doing business with clients going forward. It would be great to be able to tighten terms of trade and insist on higher deposits or shorter payment terms, but practically that is unlikely to work in a lot of cases.

So what can a business owner do to improve credit management processes? Here are some ideas.

1. Review and update your terms of trade to ensure they are robust enough

2. Ensure, where appropriate, that you have protection through the Personal Property Securities Register by registering your interest in the goods sold.

3. Set up a credit watch arrangement with your credit agency to ensure that any issues with major clients are advised early. This at least gives you a head start over other unsecured creditors.

4. Review your client base and determine those clients where a failure to pay two months debt would severely impact on your business viability and look at taking our debtor insurance on those clients.

5. Where practical, look for higher deposits or shorter repayment terms.

6. Do proper due diligence on new customers including credit checks. This is a time when customers may be changing suppliers because of credit issues with the current one.

Like with health and safety and employment law, it is not sensible to use the old adage: “It will never happen to me”. Over the past few years some well-known companies have fallen over and I would love to have a dollar for everyone who said to me: ‘That was a surprise”.

Well-known brands in the media at present are publicly advising of difficulties, so one would be naive to think that any company is immune from failure

Now is the time to review and improve your credit risk procedures to bring them in line with the significant improvement that has occurred with health and safety processes in recent times.

– Steve Wilkinson, TAB Business Owner, Christchurch & North Canterbury

How do you navigate through these uncertain times?

How do you navigate through these uncertain times?

When our world is predictable, we plan with confidence.

But what do we when our world is not predictable – as it is now?

First, we acknowledge that we are dealing with an unpredictable world.

Why? Because most of us act as if the future is predictable – when it’s not…

Using the Cynefin framework (pronounced kenevin), we divide the world into those things that are predictable (on the right), and those that are not (on the left). Having identified this, we ask: Is the situation we are dealing with simple, complicated, complex, or chaotic?

These definitions are important. Particularly now.

In a simple world, cause and effect can be replicated. You can tell what to do simply by looking at what works and doing it.

In a complicated world, cause and effect are still predictable, but the actions we need to take are less obvious. This means we need to some research or bring in an expert to help us determine the best path forward.

In a complex world, life is unpredictable, and patterns do not repeat. We can only see a cause and effect relationship after we have acted and can look back over time and join the dots.

In a chaotic world, there is no cause and effect relationship.

So how do we chart our path through these uncertain times?

First, we need to accept that what we have learned in the past will not necessarily help us in the future. This can be a hard lesson to learn…

Then, we scan the environment as accurately as we can, to see what is happening. Then we do the next best thing we can – we experiment. Then we learn, and we course correct. Then we look again, learn some more, and course correct again. And again.

As Jean Boulton said,

“Wishing the world was predictable and controllable does not make it so and might make us disregard what is actually happening.”

At The Alternative Board, our business owners meet together regularly. And when we do, we share our best understanding of what is happening. And as we see more, and learn more, we course-correct. And then we course-correct again. And again…

If you are struggling to identify the best path forward, please call us to see how we can help you navigate through these uncertain times.

– Karen Van Eden, TAB Business Owner, Auckland West

Turning disasters into opportunity – the case for planning and the lessons learnt

Turning disasters into opportunity – the case for planning and the lessons learnt

The thing about business planning is that it presents options that are available at some future point. Having a clear view of potential options can be remarkably useful. Especially when your business collapses around you.

Take this example – a TAB member had a small engineering workshop in Tauranga, with two CNC machines that were fully committed. The opportunity to expand capacity was in the 2021 plan (built using the TAB planning tools). In mid-2019 disaster struck – one machine failed and the business was in real trouble. The machine was no longer supported by the manufacturer and after six weeks of attempted repairs and imported second-hand parts that failed to help, the reality was accepted. Customer orders had been given to competitors to supply and the machine was scrapped.

Now the choice was to re-invest or close!

Fortunately, the planning had been done on new capital investment and the monthly accounts were in very tidy order in preparation for the inevitable scrutiny by a lenders credit committee. So a new machine was purchased at $200,000 and the business began a new chapter.

Lessons learnt;

Time out of the business: This owner was forced to take time away from being completely focused by his workshop and now had time to talk to customers and potential customers. What he learnt was worth more than his lost production.

Customers: This was the opportunity to leave behind the customers who were low margin or late payers as the company took on new business.

New Investment: The new machinery catapulted the business’s capability over the competitors and gave the business a competitive edge to talk about. It changed the business’s position in the Tauranga engineering business.

New business: Was being won on the capability of the machine, at improved margins, for the reality of the market was different from the owner’s perception. It was not a priced based market! The lowest price was not the key desirable. It was reliability-based. Customers were willing to pay for surety of supply and were not interested in obtaining a lower price.

– Craig Ross, The Alternative Board Business Owner, Bay of Plenty

Do you want a solution or clarity on what you need?

Do you want a solution or clarity on what you need?

“The first secret of getting what you want is knowing what you want”

Arthur D. Hlavaty

The call came through one February afternoon during a break at The Alternative Board’s Australasian conference. “Hi, I own a professional services company. I want to grow it but I am having trouble with my sales staff and I need help and advice to sort it out”.

I thanked him for the call and promised to arrange a meeting with him once I got back home.

At the meeting, I asked him what was top of mind, and he repeated he wanted to increase his client list, and that his sales staff were underperforming. But I also uncovered the reasons for wanting to grow his business:

  • he wanted to exit his business in 3 – 5 years,
  • he had a buyer in waiting and
  • he wanted to maximise his return.

That’s great I thought, I’ve signed up a new client who has stated an interest in being a member of The Alternative Board until he sells his business in 3 – 5 years’ time.

In our first coaching session, I said “forget about the fires in front of you, what is your personal vision?” In other words – “in the ideal world what would you be doing?” My new client talked about his community, his mission at his church, his family, and using his Ph.D. to grow things that he was passionate about.

None of this was about his business, so I questioned him a little more. His response was he had been building his business for fifteen years with the goal of semi-retiring at 55 – three years away. And now he had lost the passion for doing it. So, I questioned him  – why was he still running his business? The facts were, he had a buyer that was willing to pay enough for the business to retire on and he owned commercial properties that would see him financially independent for the rest of his life.

A smile slowly came over his face, “What am I doing? It’s not about sorting out what my business needs, it’s about me sorting out what I need!”

I lost a client that day. I coached him for a few more months putting in place the plan for semi-retirement but the value I got was in the satisfaction of helping a fellow business owner find clarity – rather than a mutually beneficial solution.

I’m proud to be an independent business owner within a high CALIBRE* organisation. An organisation that puts its clients’ needs above its own.

*The Alternative Board’s Culture Statement – CALIBRE (Community, Accountability, Lifelong Learning, Innovation, Belief, Respect, Excellence)

Business Growth – Is It A Struggle?

Business Growth – Is It A Struggle?

5 Reasons Why An Acquisition May Make Sense

Are you looking for business growth? But have been frustrated by the reality of making it happen?


Here’s 5 reasons why you might consider an alternative to organic business growth: growing your business by acquisition.

  1. An attractive ROI
    Depending on many factors, it is likely that an appropriately sized SME acquisition target will be valued at a multiple of between two and six times its EBIT. Taking a simple inversion of those multiples suggests a crude return on your investment of 17% to 50%. In these days of extremely low-interest rates, where else can you find such a yield?
  2. Industry Knowledge
    Most likely you will have had many years in your industry sector and know many of the likely acquisition prospects. You will be aware of the relative strengths and weaknesses of those prospects and probably know the position of the owner(s). Using this knowledge will go a long way to mitigating risk and maximising opportunity. And, you’ll have the benefit of a “due diligence” exercise during the acquisition process.
  3. Synergy Benefits
    Synergy is commonly defined as 1 + 1 = 3. This means the whole is greater than the sum of the parts! Typical benefits that may arise from a combination of two businesses include;
    1. eliminating duplicated facilities and processes,
    2. optimising distribution channels and
    3. offering new products to a wider customer group. And all these synergy benefits increase the RoI of the acquisition!
  4. Access to Finance
    Organic growth requires funding. Funding for more production, wider distribution, more inventory, more receivables and so on. From a funders point of view, fronting up with finance for organic growth requires confidence in crystal ball forecasting. Will greater production and distribution capability generate more sales? Compare this to funding an acquisition. An acquisition where the target company has provided 5 years of historical financial information, has an existing and proven infrastructure and has been subject to a thorough due diligence process? A process probably involving firms of reputable accountants, lawyers or consultants. Which do you think would be preferable to a financier?
  5. Access to Staff
    Today’s often-repeated lament: “I can’t find qualified, experienced staff anywhere“! But, if you acquire another business, you will get access to a pool of experienced talent. In turn, this will reduce the need for the frustrating and expensive recruitment processes required by organic growth.

If this all makes sense and you’re looking for your business to grow one question remains: are you and your business ready and prepared for growth by acquisition?

Find out. Take our FREE Business Diagnostic.

JAN/FEB IS THE TIME TO PLAN

JAN/FEB IS THE TIME TO PLAN

Great sports teams and coaches set clear goals and plans, but remain accountable at all times.

Business owners are accustomed to wearing many hats, that of Shareholder, Director, and CEO.  The last-minute rush to Christmas brings out the frazzled Fire Fighter hat as owners juggle often unreasonable customer deadlines, family demands, and the party season before shutdown and escape to the beach.

Christmas comes and finally, the Shareholder hat comes out.  

  • Is there any gas, I mean cash, left in the tank for me?
  • How did we perform?
  • Do I still want to own this business?

The holidays are a time for reflection.  Questions to ask include;

  • What worked well?
  • Can you imitate others?
  • Or – what can you learn from change or bitter experience?

For many businesses, January is a quiet month, and at best February is like a car in second or third gear.  When you return in January fresh from rest with a clear head – this is the time to plan.  A ship without a rudder goes nowhere.  In January/ February the phone doesn’t go continuously and you can put on your Director’s hat – to work on the business – review your strengths, weaknesses, opportunities and threats, and reset or revise your company goals, strategies, action plans and tactics with your team.

By March you are back into CEO mode – executing the strategy, action plans and tactics with the help of your team.

But if you don’t have a clear plan you won’t achieve your goals.

If you’d like some help to execute a good strategy in 2020 Register Here

Gordon Stuart – TAB Business Owner, Auckland Central

9 Steps to Safeguard your Business

9 Steps to Safeguard your Business

Rise Above Uncertain Times

Whether you’re in the midst of a crisis or simply crafting a continuity plan to protect your company against a potential emergency, these nine steps will
help you safeguard your business for long term success.

 

 

Download 9 Steps to Safeguard Your Business

    I consent to my submitted data being collected and stored. Privacy Policy
The Art of Great Communication

The Art of Great Communication

Have you ever had a conversation with someone and thought to yourself “Great! We’re on the same page”, only to find out later you were talking about apples and the other person thought you said oranges?  The result you thought you were going to get turned out to be completely different to what you visualised.  Of course, this has happened to us all.  Why is it that people just don’t listen?  In your mind it was clear, concise and really simple.  This is the source of many conflicts and frustrations as a business owner.  Why does this happen and what can we do about it?

The first thing to understand is that communication is all about what’s received not what’s sent.  It’s all well and fine for you to know exactly what you mean, however, how can you be sure that the other person does as well?  Often times we believe they were just not listening, or they deliberately did what they wanted as opposed to what we asked them to do.  Sometimes this is the case but more often than not it was because of a misunderstanding.

We all have different styles of communication and this includes our listening styles.  The key is to know yourself and to know others.  To take it to the ultimate level is for all of us to know each other.  One of the best tools I know to help do this is a behavioural assessment tool called DISC.  Interestingly the creator of DISC, William Moulton Marston, was also the first person to develop a functional lie detector and, also created the Wonder Woman character (remember the lasso of truth?).

DISC is based on 4 different behavioural styles.

D – Dominance.  People with this style tend to be ambitious, forceful, decisive, strong willed, independent and goal oriented.  They want you to communicate in a clear, specific way and for you to be brief and to the point.  Stick to business and be prepared with supporting material in a well organised package.  They tend to like to do things the Fast way.  Approx. 18% of the population are highest in the D style.

I – Influence.  People with this style are usually magnetic, enthusiastic, friendly, demonstrative and political.  They like you to create a warm and friendly environment, are not keen on hearing the detail (if you want them to get it then put it in writing) and you need to ask them feeling questions to draw out their opinions.  They like to do things the Fun way.  Approx. 28% of the population are highest in the I style.

S – Steadiness.  People with this style like you to start your communication with a personal comment to break the ice.  Present your case softly and in a non-threatening way.  They like how questions as this will draw out their opinions.  They like to do things the Traditional way.  Approx. 40% of the population are highest in the S style.

C – Compliance.  People with this style like you to prepare your case in advance.  Stick to business and be accurate and realistic.  They like the detail and for everything to be factual and to be achievable. They like to do things the Proper way.  Approx. 14% of the population are highest in the C style.

When we have a good understanding of our own behavioural style, including our strengths and our weaknesses, we are better equipped to develop strategies to meet the demands of our environment.  And being a great communicator will certainly help.  Interestingly enough almost all of us exhibit all four behavioural styles to a certain degree of intensity.  The next and more important aspect is to understand others.  When we communicate to others in a way that suits their style best, then its highly likely that what they hear is exactly what we meant them to hear.

The benefits of great communication are huge.  You may not have the “lasso of truth” however your can greatly enhance your ability to have everyone on the same page at the very least.  Talk to your local Alternative Board Facilitator to find out more.

Brave Small Businesses Buck The Trend

Small Business Rising – ‘Covid-Courageous’ Companies Contradict Economic Commentary

Contrary to ongoing ‘doom-and-gloom’ commentary, there’s a strong, steady pulse beating in New Zealand’s small business sector as owners display remarkable resilience, high confidence and a pragmatic approach to the challenges of COVID19.

The Alternative Board’s August Business Pulse revealed 95% of small-to-medium size enterprises are confident they’ll get through.  More than a third of small businesses have benefited from government support with only a small percentage anticipating job losses once the wage subsidy ends. Banks have been understanding, helping where necessary or carrying on with business as usual, and jobs are holding steady.

Sales and orders remain buoyant with supply lines and international transportation links for exporters seemingly intact.

“Given we are awash with negative commentary, the results were heartening” said Stephen James of The Alternative Board. “I think, in part, the focus has been on the hit taken by more visible sectors like tourism and hospitality but our members are involved in many other activities and their perspective hasn’t necessarily been reflected to date.

“The strong Pulse Check was even more remarkable as the change to Alert Level Three for Auckland and Alert Level Two for the rest of New Zealand occurred during the consultation period.”

On the down side, mainstream media is reducing confidence levels and the wish-list of things that would help business owners get through the remainder of 2020 includes more customers, more government support – and a rest, as business owners report they’re feeling exhausted.

“It is understandable that business owners are exhausted. Although confidence is high and business steady, they’ve worked extremely hard to achieve stability in our tumultuous times. I would anticipate this pace will continue as they adapt and adopt new approaches or innovations. While things may change and outlooks darken, business owners are pragmatic in their determination – the Kiwi ‘can do’ approach to adversity and an unwillingness to be beaten is certainly in evidence. They are ‘COVID courageous’ and I think their confidence level reflects this.

The Alternative Board’s members and associates are primarily involved in industries that make, supply, service, fix, invent or build things and the results may reflect that this group has been under-represented to date, with focus falling on hospitality, retail and tourism in other surveys.

The Alternative Board supports small to medium sized businesses and their owners through advisory boards consisting of other local business owners, expert one-on-one coaching, a suite of business planning tools and business mentoring.

The Alternative Board conducted the August Pulse Check survey of 275 of its members and associates was conducted between August 7 – 19 with a confidence level of 90% and a 5% margin of error.

Kiwi Businesses Ready To Reinvent The Future

Kiwi Businesses Ready To Reinvent The Future

Pulse check shows members are tackling the challenges of COVID19 head-on

We asked you how you were doing and you told us loud and clear — New Zealand’s small businesses are bravely facing the future, investing in growth and ready to reinvent themselves if necessary.

Our July Pulse Check revealed you are confident you’ll make it through — even though for some it has been touch and go.

Many of you are ready to reinvent yourselves if necessary, increasing spending on marketing, digital solutions and additional staff but you are borrowing more.

Your responses reflect what we’ve been hearing from our members  — that it has been a very challenging time. What was surprising was the degree of flexibility and willingness to change.

There was no doubt that the coming months will be challenging but finding innovative solutions and meeting the challenges head-on are at the forefront of your thinking.

Government support has been the saviour for many and we were pleased to see that the majority of our members looked to The Alternative Board for help and advice.

The health and viability of our business owners is at the heart of all we do, which is why we feel this regular Pulse check is critical. Listening to you in this way means we can ensure you have the right support and advice you need not just to get through the disruption of COVID19 but to thrive and grow into the future.

Running a business in ‘ordinary’ times is demanding but it is even more so in these extraordinary times. We know members round the country have been working nonstop and, after many months, you have started to feel the effects with many business owners saying they need a rest. Unfortunately, any respite is out of reach right now as you strive to meet the many challenges we face so I would urge you to continue to look for support from your board and facilitator as the months progress and look after your physical and mental well-being.

The Pulse Check was conducted during July across its nationwide network of members and boards and we will be checking in with you again in August. In the meantime, a heartfelt thanks from all of us at The Alternative Board on behalf of all the Kiwis you work with, for and alongside – small to medium enterprises are the heartbeat of our economy and your drive and tenacity is incredible. Thank you – and remember we’re always on hand to help.

The Alternative Board conducted the Pulse Check survey of 262 of its members and associates between July 7 – 19 with a confidence level of 90% and a 5% margin of error.

How Do We Survive – And Even Thrive – In Times of Uncertainty?

How Do We Survive – And Even Thrive – In Times of Uncertainty?

First, we acknowledge that we will face challenges as we navigate our way through this. Expecting to do this with ease is not realistic.

Second, after we get clearer about our path forward, we hold this path lightly – evolving and adapting what we do in response to the changes we see around us.

Third, as we move down this path, we stop and find that place of stillness that exists within us. This supports us to find our true north, our anchor, in challenging and uncertain times.

Fourth, we act as mindfully as we can. Being present to what is happening, being here in this moment – and the next one – enables us to see a more accurate version of the world around us. This helps us to make better decisions, so we swim with the current rather than against it.

And finally, we relate to ourselves, and to other people, with the greatest generosity we are capable of; as we appreciate and open to new and different ways of doing things.

This willingness to see the good in ourselves and others and to appreciate what is – may be the game-changer. For our willingness to do this reflects – and enhances – our belief in our ability to influence the outcomes around us, which is so much harder in times of uncertainty

At The Alternative Board, our business owners meet together regularly. And when we do, we share our best understanding of what is happening. And as we see more, and learn more, we course-correct. And then we course-correct again. And again…

If you are struggling to identify the best path forward, please call us to see how we can help you navigate through these uncertain times.

How Do You Survive a Recession?

How Do You Survive a Recession?

Guidance from Gordon Stuart on Recession Tactics

It’s been dubbed ‘bigger than the Great Depression’ and daily news of redundancies and restructures highlight we’re in difficult times but we’ve weathered challenging economic situations before – so how can we learn from the past and prepare for the future?

Ten years ago, Harvard University published research into the way companies respond to economic crisis and how their actions ultimately determine shareholder value in the future. Covering three recessions – 1980, 1990 and 2000 – researchers found that 17% of the nearly 5000 businesses studied simply didn’t survive. Those that did survive were slow to recover and three years on from the recession hadn’t regained their pre-recession growth rates for sales and profits. Only a small number – 9% – flourished and the winners were not as expected. Those that won through adversity were those with a multi-faceted strategy able to master the delicate balance between selectively reducing costs to survive and investing for the future, spending on marketing, new assets, research and development.

Researchers classified the companies and their responses into four groups:

  • Prevention-focused companies, which make primarily defensive moves and are more concerned than their rivals with avoiding losses and minimizing downside risks.
  • Promotion-focused companies, which invest more in offensive moves that provide upside benefits than their peers do.
  • Pragmatic companies, which combine defensive and offensive moves.
  • Progressive companies, which deploy the optimal combination of defence and offense.

Getting the balance right, being a ‘progressive company’ is a challenge we all face right now, particularly given the effects of recession are not felt for some time – for example, the depth of the 1987 recession was felt in 1991. So best practice means being prepared for the next waves as they come through.

So what does best practice look like? Here are some steps that can help:

  1. Continue monthly /quarterly rolling cashflow forecasts
  2. Preserve liquidity so you have two to three months working capital
  3. Regularly forecast sales so you can identify trigger points for actions
  4. Use a financial model to calculate
    • Sales by category or division
    • Gross margin before labour by same
    • Overheads
    • Direct and indirect Labour
    • Your breakeven under a best / worst / likely scenarios.
    • Note your breakeven can be quickly adjusted to a percentage of sales e.g. 10% target.

The model below determines your monthly salary cap. Determining your salary cap is the best way to achieve your required labour productivity and, for simplicity of explanation, I have used an annual example.

  • Assume revenue of $1 million and a net profit goal of 10% or $100,000
  • Assume also, we have non-salary costs (costs of goods sold $200,000 and overheads of $200,000) i.e. a total of $400,000.
  • We can now determine a salary cap of $500,000 in order to still achieve our net profit goal of $100,000 or 10% at this revenue.
  • It doesn’t matter if your employees are part-time or full-time. You have a $500,000 salary cap. It doesn’t matter if you give incentive pay or hourly pay. The sum of all salaries & wages at the end of the year cannot exceed $500,000. It’s no more complex than that.  On a monthly basis, this is $41,666.67.

Being able to respond to economic challenges takes some flexibility – for some years now, agile working has been signaled as a good way to operate but what does that mean for day-to-day operations? For the most part, it means continually reassessing your position – what matters most? Next, stay vigilant, inspect and take stock of your numbers. Work on your strategy – what choices are there, how can you improve your value proposition, what will you do to inspire your team? Finally – agile means getting on with the job. Executing and implementing the plan as you adjust it and often this is the hardest piece of the puzzle.

We may find ourselves in a great recession but with some forward thinking, agility and an adherence to best practice it is possible to come out the other side and flourish.

Turn your Accounting Cost into Profitable Knowledge

Turn your Accounting Cost into Profitable Knowledge

  • Turning Information Into Knowledge
  • Turning Knowledge Into Profit
  • Cash Is King

As an entrepreneur, you are a visionary. You have an idea, a product or service that you want to bring to life. Rarely will the requirement to maintain a set of accounts feature strongly in your desires or even your planning process.

As your business grows your visionary zeal can quickly be overtaken by the mundane requirements of compliance.

This ‘cost’ of compliance can manifest itself in many ways, the most common is a drag on your own time and quality of life. You can find yourself working late into the evening and weekends just to keep on top of ‘paperwork’.

To overcome this loss of your own time you may decide to hire a bookkeeper to join your team but how do you find a good one?

Come the end of the financial year you will more than likely need the help of an Accountant to draw together your Year End Accounts, filing at the Companies Office, and preparing your business Tax Return.

Worst of all, this Year End paperwork takes place weeks and months after the event, which provides you with no useful information at all!

Turning Information Into Knowledge

What if this bookkeeping and paperwork could contribute to the profit of your business? What would that look like and how would you feel about paperwork if you knew it was contributing to your success? Turning Information into Knowledge to Decide what critical pieces of information you need daily, weekly and monthly to ;

  • Ensure your financial systems support the provision of that information
  • Use charts to plot key information and see trends develop
  • Identify key drivers of Gross Profit and include them in regular reports
  • Look back at financial history to assist forecasting but spend more time looking forward identifying potential challenges ahead

Turning Knowledge Into Profit

Deciding which pieces of information are critical to you and limiting the number to no more than seven will mean you pay attention to those numbers. This helps you to focus on what is important in your business, making decisions based on fact.

Creating a reporting ‘rhythm’ helps those around you understand what is important and what they need to provide to ensure the information is accurate and provided in a timely manner.

Charts create pictures, pictures based on numbers. Pictures paint a thousand words and if those around you have understood the requirements those numbers will not lie.

Gross profit is the first line of ‘cash’ available to spend in the business, everything that comes below revenue and above Gross Profit leaves the business. Make gross profit your new ‘top’ line and understand what impacts this profitability. A 1% increase in gross profit adds far more to the ‘bottom’ line than a similar increase in revenue.

Spend a little time looking back at past performance but only to understand what worked and what didn’t. Forecast to do more of what worked! It may be fine to forecast sales a year ahead in your business but there is rarely value in forecasting cashflow more than four weeks ahead. The better you get at forecasting cashflow the easier you will sleep at night.

No forecast should be ‘set-in-stone’, make it a work-in-progress to gain the benefit of agility. Plan – do – check – review, keeping the critical information you need to a minimum will enable you to continuously improve those areas vital to your business’s success.

Cash Is King

A bank will follow the ‘flow’ of cash through your business before making a lending decision. The IRD expect your accountant to follow the ‘flow’ of cash through your business to ensure you have accounted for everything in your year-end accounts. How closely do you follow the flow of cash through your own business? Do you sleep well at nights because you are carefree about our cashflow?

Most transactions within a business are processed by the ‘accounts’ function and usually within a piece of accounting software. Those transactions are ‘information’ and that information can be turned in to ‘knowledge’. Knowledge about where your cash flows from, where it flows to, and most importantly what is left for you to re-invest.

Most business owners can make better decisions for their company when they have timely and accurate information. Leveraging that information, turning it into knowledge, converts bookkeeping costs into profit.

– David Morley, Numereyes, TAB Member

What’s Next?

What’s Next?

After the shock of what’s happened in the last month or two and as the adrenalin begins to subside and fatigue starts to catch up, what happens next?

Here’s a few initial thoughts.

First, take a moment. Imagine the bell signalling the end of the round has gone, you’re reeling from a knock-down but now, for a few moments, you’re in the safety of your corner with your coach. Introspect. How are you feeling? How’s your energy level? Do you have the resilience to keep going? Whatever you think, it’s ok! Quoting Paul Simon: the fighter still remains.

Secondly, survey your environment. What’s changed recently? What impact does that have on your life? Your family? Your business? Use the SWOT exercise to help you think this through.

Thirdly, talk to your coach in your corner. They’ve got your back. Iterate. Discuss. Challenge. Look ahead. Be open-minded. Agree some short-term actions.

Fourthly, be light on your feet: float like a butterfly!

Whatever path you select, the next few months will throw some further challenges. Be ready to adapt and adjust.

Finally, lean on your supporters to get you through (RIP Bill Withers). Now is not the time to be alone.

Stephen James – Owner, The Alternative Board New Zealand

Paul Denton

Paul Denton

“You don’t need to go it alone.”

Paul Denton – Scott PHS

“Prior to joining TAB the opportunity to share my ideas and day to day issues was limited to my accountant and some of my senior staff. Having an opportunity to meet with other business owners with remarkably similar issues was empowering.”

“Since joining TAB I have resolved a number of difficult employment-related issues, but more importantly gave me the motivation to step back long enough and complete a Strategic Plan, with the invaluable assistance of Karen Van Eden. Critical for our future growth and longevity.”

“TAB gives me an environment that challenges me as an individual and reminds me of my responsibility to my staff and customers”

“Bruce is a treasure of experience and professional connections of which I have taken advantage. One on One Coaching has help me confirm my thoughts and provided connection with other professionals to help resolve issues that ultimately strengthened my business. I would have no hesitation in recommending Bruce and Karen and TAB to any business owner. You don’t need to go it alone.”

Paul Denton

Managing Director – Scott PHS