Activate Auckland

Activate Auckland

Activate Tāmaki Makaurau, the agency established to implement the Government’s support package for Auckland businesses, is now up and running.  The $60 million package designed to assist Auckland businesses through this Covid transition period enables businesses to apply for up to $3,000 for business advisory and planning support and $4,000 for the implementation and execution of that advice.

Your business can access expert advice and support in the following areas: 

  • Business Planning, Strategy and Continuity (e.g. workforce planning, risk management, new products, new markets, new opportunities, operational improvements) 
  • Financial Planning and Cashflow Management (e.g. budgeting, forecasting, scenario planning) 
  • HR and Employee Relations and Legal (e.g. people leadership, advice about attracting and retaining staff, contract law, legal requirements, COVID-19 framework guidelines) 
  • Business Hibernation or Exit (e.g. liquidation plan and succession planning advice) 
  • Marketing Advice (e.g.  marketing strategies, value proposition development) 
  • Digital Marketing (e.g. digital marketing strategy, website strategy) 
  • Digital Enablement (e.g. digital productivity, client interaction strategy, operational digitisation, cyber security)  
  • Health and Safety Advice (e.g. working within COVID-19 framework guidelines) 
  • Health and Wellbeing Advice for your business to support your workforce (e.g. to develop plans to support wellbeing and build resilience of your employees) 

To get started visit Activate Tāmaki Makaurau here.

It’s been a long, hard road for many Auckland businesses.  If your business is one of those adversely affected by the events of 2021 we’d love to assist you to get your business moving again. The Alternative Board is registered to provide both advisory and planning support and the implementation and execution of that advice under the following categories:

  • Business Planning, Strategy and Continuity
  • Financial Planning and Cashflow Management
  • Business Hibernation or Exit
  • Marketing Advice

You can contact our Auckland Facilitator/Coaches here.

Challenging Realities Ahead For Small Business Sector

Challenging Realities Ahead For Small Business Sector

Falling confidence, fragile operating conditions and the shadow of inflation are just some of the economic challenges stacking up for small business owners in 2022.

This year’s Pulse Tracker from The Alternative Board tells the story of small business survival through the second year of the pandemic and, while the strong, steady beat of the small business pulse remained consistent through the first onslaught of COVID19, it has now quickened with anxiety as the realities of the pandemic’s midpoint move into view.

The Pulse Tracker charts the progress of small businesses and their owners through a year that has seen them grapple with employment issues, cash flow crises, supply chain breakdowns, port disruptions, rising costs and other problems.

Alfredo Puche, Managing Director of The Alternative Board said: “Confidence remained high until July, despite the many obstacles and uncertainties but the Delta outbreak cracked that confidence with many business owners who had resolutely worked their way through the highs and lows finding themselves exhausted – and some have reached breaking point.

“July also saw the first red flags with business owners warning their prices would have to rise in response to higher input costs. The prolonged lockdown in Auckland plus restrictions across the rest of the country eroded confidence even further, with many feeling it was time to sell up and move on”.

The latest phase of the pandemic is crunch time for many, taking some by surprise with its severity and cementing the view that doing business is likely to get tougher.

With the end of the year in sight, owners are analysing the potential scenarios 2022 might deliver and planning how they will cope. Inflation, rising interest rates, worsening supply chain issues, the implementation of vaccination policies plus the advent of a new variant have fuelled the uncertainty clouding the months ahead.

The Pulse Tracker tells this year’s small business story, as seen through our quarterly Pulse Check, which provides ongoing insights into how owners have managed during 2021, where they are now, and how they will tackle the challenging realities ahead.

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 Pulse Check is a quarterly monitor of the sector and the Pulse Tracker aggregates and analyses the research results for the whole year. Each edition of the Pulse Check has a confidence level of 90% and a 5% margin of error.

You can download a copy of the tracker report here.

We will continue to check the pulse in 2022 with the next edition scheduled for mid February.

Each Pulse Check has had a confidence level of 90% and a 5% margin of error.

What is working capital?

What is working capital?

When you start your business some of the language used to describe aspects of the financial operations can be mystifying to say the least. In this occasional series, our advisors explain some of the concepts – and language – that is used to give you a clearer understanding.

This week, Gordon Stuart gets to the bottom of working capital and what it means for a business owner. 

Put simply, working capital is used to cover all a company’s short-term expenses, including inventory, payments on short-term debt and operating expenses such as wages, salaries, rent and other overheads. Working capital oils the wheels and is used to keep a business operating smoothly in order to meet all its financial obligations within the coming year.

  • Working Capital is defined as current assets minus current liabilities and, if a business cannot meet its short-term debt obligations, it is experiencing liquidity risk. Running out of cash is what kills any business first.
  • Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value.
  • Cash is universally considered the most liquid asset, while tangible assets, such as real estate, fine art, and collectibles, are all considered relatively liquid.

Understanding your business’s working capital requirements and where your cash is absorbed is key to success when you approach a bank for support.

The first thing a bank looks at is:

The cause (where money has gone) and the purpose of your proposal.

What proportion is being provided by the bank, the business and other participants (e.g. second tier lenders, or asset financiers).

The intended use by the business e.g. to increase working capital to fund growth or to fund an acquisition.

Some questions you need to be able to answer include:

  • What is the length of your operating or cashflow conversion cycle? For example, an importing retailer needs to know how long it takes to get cash from retail sales from the time they source or pay for imports – often more than 3 months. Likewise many service providers do the work but don’t get paid for 30 – 60 days. More importantly do you know how to change the length of the operating cycle or identify ways to unlock cash to improve working capital or support growth?
  • What are your intra and inter month working capital requirements? Banks look at your daily and monthly highs and lows of your overdraft as an early warning signal of trouble.
  • How does productivity and seasonality impact your cashflows? For example – holidays and short months reduce labour productivity which usually has a negative cash impact, alternatively increasing production to build stock for the peak summer season absorbs cash.
  • How many months working capital do you have if you incur losses?
  • Do you have access to an injection of cash if needed?

If you are struggling to understand some of the principles or, like many business owners are learning as you go, don’t be afraid to ask for help – we’re here to do just that.

Americas Cup shows innovation is a process

Americas Cup shows innovation is a process

As we marvel at the speed and agility of the four America’s Cup teams on Auckland’s harbour this weekend, it is interesting to reflect on how they got there and how they continuously innovate and improve.

To innovate you need an open and collaborative process and sometimes, businesses of all types rest on their laurels and forget the creativity and passion that got them started. Many years ago, Edward De Bono developed the Six Hats thinking process to encourage productive discussion and innovation in organisations, rather than blame or arguments. The Thinking Hats take away ‘right and wrong’ and encourage people working in a team to take different views.

First is the ‘Blue Hat’ that facilitates or conducts the process and keeps the team on track.

The ‘White Hat’ analyses – for example, it produces the engineering data which helps the high performance teams work out how to get the boats to go faster.

The ‘Green Hat’ is the creative hat full of alternative ideas – who else would have thought of leg-powered bicycle grinders on our boat in Bermuda?

The ‘Yellow Hat’ is the sunshine – full of optimism, it looks for benefits. In our Bermuda bicycle example leg muscles are larger than arms. This gave the AC50 grinders more power to supply the hydraulic systems which raise and lower the foils and pull in the huge wingsail.

The ‘Red Hat’ is the intuition hat, driven by emotion. “My gut feeling is this will or will not work.” Intuition is often built on complex judgement based on years of experience and may be an art rather than a science.  Boatbuilding is an art and it is worth reflecting that, in business, restructuring often fails because the human element, the emotion, is not properly taken into account.

The ‘Black Hat’ is the caution or critical judgement hat. Engineers try to make sure the loads on these boats are safe. Get it wrong and death is a real possibility. However, imposing too much health and safety too early can kill creativity.

The boats we see in January and February will be very different to those we see this weekend. The ‘Blue Hat’ will oversee continuously trialing and optimisation on the water – proof that innovation is a continuous process.

As a small business owner, you’ll be wearing many hats – De Bono’s colourful collection and the Captain’s Hat too, as you steer your enterprise through the choppy waters of 2020 and beyond. A start up business is often born from a Green Hat creative idea, or from an optimistic Yellow Hat applying someone else’s crazy thinking. Bridging the ‘valley of death’ and not running out of cash in a start-up requires a big Blue Hat to navigate uncharted territory. Often it takes many years – and continuous innovation – to get your business model right.

I am currently working with a customer whose Black Hat thinking began an innovation process, building an automated system that manages lead generation and marketing through to sales, operations, accounting and pricing. Any information technology system implementation requires all the hats to get it to work, and because of the new automation his net profit margins are now much higher than his competitors.

As your business matures, it is easy to become stale – competitors whittle away your super profits and you continue to cut overheads. If you look at breweries, beer is in decline, and they have had to develop or acquire new categories to achieve growth or sustain profits. Innovation and creativity is the lifeblood of your business and is underpinned by your passion for what you do. Keeping your creativity alive is essential, as is innovation because, if you stop innovating or let your creativity stagnate, you can end up like Kodak.

Kodak was so blinded by its success in selling film it completely overlooked the disruptive potential of the digital camera invented by Steve Sasson, one of its engineers, in 1975. However, the real disruption occurred when cameras merged with phones and people shifted from printing pictures to posting them on social media. Kodak missed the trend and had to deal with the resulting consequences.  

So remember as you watch the boats fly through the harbour this weekend, every captain must innovate, be prepared to change course and adapt – or run the risk of losing the race.

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.

Note:- 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.

  1. 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.
  2. 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.
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.”

The Alternative Board - OwnersAuckland Central