With a number of new government policies and initiatives taking bite, businesses are facing a new, more challenging environment. The latest ASB business confidence survey showed business confidence was at its lowest level since March 2009, with New Zealand business confidence falling to more than a 10-year low in the quarter to June 2019.

Across a number of markets and industries we are seeing a downturn in business activity. The year ahead is likely to be characterised by the following:

  • Falling interest rates
  • An increase in business failures
  • Profit downgrades from large corporates
  • Contraction in capital and lending available to businesses
  • Tougher lending criteria by banks
  • Deferral of major capital projects and expansion strategies by businesses.

It will be interesting to observe how the year progresses and how these factors will impact SME’s as well as larger players.

What we know is businesses are under more pressure in the current environment. We have also seen a slowdown in the housing market over the past few years. The housing market in Auckland in particular has traditionally been a closely associated barometer to overall business confidence aligned to home owners overall appetite for risk and debt.

On top of weakened business confidence the most constrained resource we are still seeing across multiple industries is a lack of people with the right skills. Skilled employees are increasingly highly sought after, especially when coupled with the right soft skills. This goes against historical trends when unemployment usually rises in times of economic downturn.

PROTECTING YOUR BUSINESS

What can you do to protect your business in this current environment?  Most business owners are busy in the day-to-day operations of running their businesses, paying bills, finding customers and dealing with staff. Now is the opportune time to seriously consider business risks. To do so requires a high level review of the key areas of your business, identifying what risks exist, and to what extent can they be mitigated. Risks will of course differ across businesses depending on the scale of the business and type of industry.

In this market, business and risk reviews are a necessary part of a risk management strategy. Most risks can be identified and fall within the broad categories of operational, business, customer and financial risks. Health and safety has also become a major risk factor with new obligations under legislation introduced in recent years. Many businesses fail to identify risks purely due to the time-consuming nature of the operational requirements of running a business.

Key issues to identify in a business review for a successful and sustainable business are:

  • Liquidity and solvency
  • Profitability
  • Business risks
  • Customer risks
  • Operational risks
  • Financial risks
  • Opportunities

A business and risk review cuts through all the operational distractions and identifies the risks present in the business. From this process each risk can be systematically addressed or mitigated by management in an effective and timely manner.

CASH IS STILL KING

Cash is still king and understanding your business cashflow is vital. We are seeing an increasing number of businesses suffering from a lack of cash in the current market. If you don’t have a full three-way cashflow forecast (P&L, Balance Sheet and Cashflow developed for your business, now is the time to prepare one. A profit and loss budget is simply not sufficient as it will not adequately provide essential forecast information on cashflows which can differ significantly based on unique factors such as customer and supplier terms, seasonality and capital and debt repayment requirements.

Even if your business is currently operating strongly, a business and risk review will provide valuable insight into your business and provide a robust framework for ongoing management and governance of your valuable investment.

 


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