Relief is on the horizon for NZ biz, but are you prepped to weather the storm?

As New Zealand grapples with economic uncertainty, the Reserve Bank’s recent interest rate cut offers a glimmer of hope for businesses. However, with consumer spending still cautious and rising unemployment looming, businesses must strategically prepare for the challenges ahead. Luke Fossett outlines key strategies for navigating this transitional period and optimising cashflow in a shifting market.

The Reserve Bank’s big call to cut the OCR by 50bps to an 18-month low of 4.75 percent is obviously welcome news for businesses and households alike. Even after August’s prudent 25bps cut, official data has suggested that bleak economic conditions persist in New Zealand – meaning more action is needed.

Softening inflation means some welcome relief for consumers but it’s tough being a business in New Zealand right now. The local economy is weak and rising unemployment will continue to cast a long shadow in the months ahead. Thankfully, the easing of inflationary pressures has granted the central bank the confidence it needs to make a move as significant as the one we’ve seen this week.

While the tides are now turning, businesses will find themselves at an awkward stage; stuck between improving macroeconomic conditions and a consumer culture that won’t quite recover overnight.

Research indicates that as we head towards Christmas, more businesses will depend on end-of-the-year sales than in previous years. In fact, businesses that attribute 50 percent or more of annual sales to what they sell during the holiday season have nearly doubled (17 percent in 2024 compared to 8 percent in 2023).

At the same time, we’ve seen a decrease from last year overall in annual revenue attributed to end-of-year sales. Nearly one-quarter (23 percent) attribute less than 10 percent of their annual sales to end-of-year/holiday season efforts – meaning some NZ businesses will face cashflow concerns during a crucial peak season.

So what does this mean exactly?

Consumer spending in New Zealand has been slipping, and the economy’s shaky ground is a big reason why. With GDP shrinking by 0.2 percent in the June 2024 quarter, following a slight 0.1 percent rise in March, many people remain cautious.  The uncertainty around economic stability is leading shoppers to pull back, as reflected in a 1.2 percent fall in retail sales volumes in the June quarter.

A major factor driving this caution is “price tag shock.” Even though inflation is steadying, people are still adjusting to higher prices on everyday items, which is slowing down spending. Retailers are feeling the pinch, with over half of consumers reporting they’ve reduced their spending with SMB) this year due to inflation.

What can businesses do to navigate this period?

In this environment, every dollar counts, making it crucial for businesses to protect their bottom line. Decision-makers should carefully evaluate their company’s expenses and look for opportunities to cut costs without sacrificing quality or customer experience. Here are three key strategies for managing cashflow while the consumer culture thaws.

1. Protect top line

Make your business easy to work with. Do what you can to ensure those hard-earned consumers you’ve spent good money to acquire can be converted into customers. One of the simplest ways to do this is to cut through unnecessary friction for the consumer.

Explore whether you can offer more convenient and diverse payment options. Confirm you’re offering the preferred ways to pay, too – figure out more than ‘if’ your consumers are spending money, but ‘how’ they’re spending money.

2. Optimise spending

This is the perfect time to look at how and why money is exiting your business. Even when it comes to essential overheads, there’s every chance you’re paying more than you need to.

A big one here is ensuring you’re paying invoices and bills efficiently to avoid being charged with punitive dishonour fees, which can quickly add up.

Explore ways to automate certain processes to get time back in your employees’ schedules, meaning your team can spend more time on activities that truly add value.

Inventory management is also important. Whether it’s milk in the fridge or computer carry cases, chances are you have plenty of existing opportunities to switch to a cheaper alternative or save by buying in bulk.

Finally, a big key to optimising spending is to review your company’s subscriptions. Plenty of businesses would be shocked to discover how many services they’re paying for that their team isn’t using. These small costs accumulate quickly and over a year, can amount to a massive unnecessary loss.

3. Get paid on time

Nobody likes having to chase overdue cash and unfortunately, there’s no magic bullet that permanently solves the issue of overdue accounts. What you can do, however, is minimise the risk that your customers become late-payers.

Negotiate clear 30-day terms with your clients or customers, and integrate systems that can ensure you’re getting paid on time. Some ideas include platforms that offer automated follow-ups on unpaid invoices, machine-learning-assisted solutions that can optimise individual payment cycles or even payment methods that automatically ‘pull’ funds from accounts at the appropriate time. Explore the options most suitable to your business and always communicate your payment terms clearly.

If you haven’t optimised your cashflow, you risk having to pay overheads before money has come in, which can quickly destabilise your ability to make a profit at all.

These recent rate cuts mean relief is on the way for businesses – until then, foster conditions for timely payment, ensure your terms are enforced, and maintain visibility over when you expect money to be moving in and out of your business.