Under Pressure
2023 is shaping up to be one of the most challenging of years for business owners. Is your business prepared for what lies ahead? NZBusiness asked coalface experts to assess […]
2023 is shaping up to be one of the most challenging of years for business owners. Is your business prepared for what lies ahead? NZBusiness asked coalface experts to assess the mood and share their gameplan for succeeding under pressure.
For many business owners contemplating 2023, it may seem like looking into a dark tunnel. Fortunately, there is light at the end of it.
Meantime, there is work to do, so we went to experts covering the business spectrum – from sole trader to large business – to identify those aspects of business management that especially require attending to when we’re all working under a recessionary cloud.
But first – exactly how is the marketplace shaping up as we launch into 2023?
Dorian Crighton, director at accounting and business advisors Baker Tilley Staples Rodway, sees the big issues of the day as finding the right staff, and having to walk the tightrope of market and margin pressure.
“There’s a lot of pressure on SMBs to keep prices at a [certain] level, but while it might be appropriate to charge $9 for a takeaway coffee or $200-plus for premium dog food, customers are unlikely to pay that,” he says.
James Fuller, founder of Hnry, a specialist accountancy for contractors, freelancers, sole traders and the self-employed, believes 2023 is crunch time for everyone, not just the self-employed.
“The temptation is for self-employed individuals to dip into any tax money they’ve set aside so far this year. They may think they can spend it now and recoup it later, but that’s the death knell for a business – robbing Peter to pay Paul, he says.
“So many people end up inadvertently trapped in debt repayment plans with IRD or financial difficulties as a result.”
On a similar vein, Lisa Martin, founder of Wellington-based accounting advisory firm GoFi8ure, says that surprisingly there’s still a blame mentality out there – “one that says if there’s money in the bank, I’d better spend it before the government eats it all up”.
Business owners must learn to keep a handle on their costs, and not spend money just because its available, she says. “Some people are spending like its 2018, in order to ‘keep up with the Joneses’.”
Lisa regularly gets calls from people who formed a limited liability company a few years ago, put themselves on the payroll, and now want to know if they can get into the housing market.
“With interest rates, minimum wages and prices going up, the rush to buy a house can be a trap. We’ll look at tax liabilities, salary, and what money can be taken out for a house. Some people are frivolous, others careful. It’s important to listen to advisors and build a relationship with them.”
Her advice is to spend on expenses that are actually going to generate revenue. And always make decisions based on evidence – not an emotional one based on insecurity, ego or fear.
“Whenever a business owner comes to me to talk about spending or investing money, my first response is ‘Where’s your business plan? How are you going to earn money from this? Will you earn more than it will cost to implement?’
“In 2023 speculating to accumulate is no longer an option.”
Planning is key
In addition to his tips on balance sheet stability (see sidebox), Dorian Crighton’s advice for tough times includes reviewing the four pillars that support you and your business. They are:
• Have a one- or two-page plan you’re accountable to and review it quarterly.
• Have a cashflow budget – it’s a great tool and lenders appreciate the ability to compare the budget against actuals.
• Have a team structure – know who is doing what, where the weaknesses are in your abilities, and hire or outsource.
• Have a plan for managing risk to help you gain some control of the somewhat uncontrollable. Ensure health and safety, and cyber and personal risks are all covered. This helps lenders see a complete and well-governed business.
Dorian says the biggest mistake he sees business owners making is failing to communicate with all ‘stakeholders’.
“Tell your team your direction, your plan, and how the business is traveling. Communication between your business and any advisors you have is also paramount.
“In business you don’t want to be the smartest person in the room – the best at what you do, yes, but surround yourself with people you can truly talk to. Make it a team.
“Also, talk to your suppliers,” he says. “Communicate what your forward orders are going to be and ask if they see future price increases, so that you can manage yours if you’re having trouble with cashflow.”
Looking ahead with confidence
Looking ahead to the rest of the year, businesses that lag in innovation and technology will continue to struggle, believes Dorian. But he does see two main trends affecting businesses for 2023.
“Firstly, the cashflow pressures that come with an increase in interest rates. Cashflow issues are almost a normative in business, especially in SMEs. I would recommend you review your cashflow cycle, including your Accounts Receivable processes.
“Secondly, I see continued pressure for yet another level of reporting that is being placed on businesses – namely Carbon Reporting. While it is mandatory for larger organisations, I also have clients being asked to provide carbon reporting as part of their doing business with larger companies and government organisations,” says Dorian.
“Carbon credit audits are now becoming part of general accounting audits,” he says. “Staffing will continue to be problematic, although I expect that unemployment will rise and free up the labour market, and there will be a slow but helpful increase in backpacker tourism.
“Rising fuel prices, tourism and the wider impact of the value of our dollar will be trends that we will all have to watch as well.”
James Fuller’s advice for the months ahead is to “be resilient and take control”.
“Make sure you get the maximum from your business expenses. It’s important not only to look out for deals but to plan ahead, consider whether you can bulk buy and take advantage of economies of scale, or look at different ways of spending.
“Figuring out how to get value out of your business expenses is vital,” he adds. “Getting the tax relief on these expenses straight away is a big part of what we do for our customers, enabling them to get that cashflow benefit,” he says.
“Also contributing to this is getting paid as fast as possible so you can be in the most positive cashflow position by taking control of it.”
How’s your credit strategy?
With the right credit strategy in place, and knowing which red flags to look for, business owners can be in a much better position to ride out New Zealand’s forecast ‘shallow’ recession.
Centrix COO Monika Lacey reminds business owners that you can manage risk, but not eliminate it completely. She says working with other businesses is paramount, and whether its your customers, suppliers, logistics operators or service providers, you need the support of others. If you’re looking at a potential business customer, always check their credit rating, she says. “You are more likely to be paid on time by a company with a high credit score, than a low one.”
Monika also reminds businesses that credit risks can also come from customers or consumers. Undertaking consented credit checks can help reduce this risk. “Nevertheless, every customer you extend credit to presents at least some risk, and you’ll inevitably find yourself needing to manage payment defaults.”
Having a good rapport with customers is important and can be mutually beneficial, she says.
“Being understanding and flexible when it comes to alternative payment options to help customers through difficult times isn’t just a good moral decision, it makes sense from a business perspective.
“After all, receiving payment, even if it takes longer than desired, should remain the goal.”