Why some business struggle and others fly

Some Kiwi SMEs are calling it a funny economy because some companies are busy while others in the same industry have gone quiet – a movable feast that can change month to month – but, as one chartered accounting firm is asserting, it possibly has less to do with the economy than with the business itself.

Director of chartered accountant and business advisory BetterCo, Alister Siew (pictured), says the New Zealand economy, buoyed by the property industry, is doing better than expected, and perhaps it’s time for those that are struggling to reassess their business plan or strategy.

“To begin with, a business should take steps to mitigate the damage that seasonal fluctuations can do to cashflow. It is winter, it is school holidays, but if your business is affected by the season, it should not surprise you.

“If you are now going through a soft period, spend the extra time you have to work on understanding your business and your market better; do some planning and get on top of your cashflow forecasting and budgeting – the key to operating a successful business in our constantly changing times is information, understanding and planning. The days of flying by the seat of your pants are gone.”

Siew said where you have one graphic design company that is busy and another that is slow; it’s time for the company that is struggling to stop looking outward and instead turn inward.

1. Understand your target market, better

While a company may not be in a particular seasonally affected industry itself, such as farming, its clients may be.

“You may own a cafe in downtown Auckland, but if many of your clientele in the offices around you serve the farming sector, they will go quiet when the farming sector goes quiet.”

Siew says social trends also impact business. For example, the need for instant gratification can be seen in the rise of business models like Uber Eats, Netflix and Tinder. If a company is not responsive enough, this may be another reason sales are down.

“Your sector, your attitude, your niche, your customer expectations and how quickly your respond to market changes will impact your business negatively or positively,” Siew says.

2. Adopt a recurring revenue model

Uber Pass is a good example of a recurring revenue model to lock their customer into a monthly subscription of $14.99.

“If a customer pays a regular monthly subscription, they get unlimited monthly deliveries. This makes the business less reliant on one-off sales and makes their cashflow more secure. Barbers give one-off haircuts, but if they offer their customers a monthly, discounted subscription, they are suddenly a lot less reliant on a customer’s whim, mood or timing.

“A monthly recurring model means you’re not spending time and energy chasing one-off sales. Many Kiwi SMEs don’t know if they are getting repeat sales or who their loyal customers may be. A reoccurring revenue model allows you to measure these critical factors.” 

3. Re-invent your business

A business affected by seasonal fluctuations, for example, outdoor activities and adventure businesses, should not just accept their lot and instead look to make the company more resilient by for example diversifying its products and services, offering special deals or expanding its scope.

“For example, a business that offers kayaking tours may go quiet during the winter months. Instead of just accepting that’s the way things are, they can create a special winter challenge or a winter adventure tour that shows off the marvels of winter, hot drinks, wet suites and bonfires thrown in.

“Or perhaps the kayaking tour company can use it’s booking system to serve another sector or need during the so-called off-season.”

Siew said one of the most significant risks to a business, apart from cashflow challenges, is how the soft or quiet months negatively impact confidence.

“When your confidence is down, it is hard to pick yourself up. But when you understand why something is happening, that new information – particularly the numbers – will fuel answers, ideas and solutions which will ultimately help re-position you for success. Understanding offers a new lease on life.”

For more information: https://www.betterco.nz