Managing through difficult times: tips for business owners

There’s no doubt times are currently tough. As a country, we enjoyed a period of growth driven largely by the COVID-19 government stimulus and a historically low funding environment. Today, high interest rates and a general increase in the cost of business are having a material impact on overall profitability.

But it’s not all doom and gloom. Last month saw the Reserve Bank of New Zealand make its first rate cut since March 2020, as inflation drew closer to the central bank’s target of 1-3%.

With more favourable headwinds on the horizon, there are a number of levers you as business owners can activate during this time to ensure your organization is well positioned when the market starts to turn.

Identifying areas for improvements

In busier times, it’s common to need to concentrate on delivering your core products or services.

With potentially more time on your hands at present, it could be a good time to focus on the processes and practices your business employs and identify better ways of doing things. Doing so is an opportunity to increase efficiency and identify any risks that you were not aware of.

For example, you might look at your workforce and assess who performs which tasks, to help reduce duplication and potentially redistribute tasks or redeploy people to improve productivity.

It may also be helpful to review your purchasing processes. This review could raise questions about whether you are receiving the best value, and need to consider putting contracts out for tender.

Identifying areas to save costs and improve cash flow

Buoyed by positive market sentiment, many businesses have added cost over the last few years and often in areas where it’s difficult to link the spend to tangible customer outcomes. Now’s the time to critically evaluate those costs and assess whether they’ve improved the business or simply added overhead.

Review spending to understand your old cost base and what’s changed in outputs for the business. It could be that the additional cost hasn’t improved your business.

Even if you’re making a short-term loss, it could make sense to release excess equipment or stock to assist with cash flow. If necessary, work through your costs on a line-by-line basis and challenge the value each one brings. Items to remove could include subscriptions, support agreements, sponsorships, etc.

Prioritising your investment spend and understanding the tangible benefits

Once you’ve looked at your spending behaviour to date, focus next on future investments to ensure they deliver real returns.

With limited financial resources, many of us need to make tough choices about where we invest and understand the financial consequences of these choices. A critical question to ask is, “will this investment drive profitability?”.

The answer could be the difference between business sustainability or going bust. The key during tough times is to sharpen your focus on the KPIs that really drive your business and invest in line with these.

Bringing an objective and less emotional perspective to decision making

When making tough decisions, an open mind is key. Take the emotion out of it and assess each situation against the commercial value it brings to your business.

It can be hard, particularly in decisions where people are involved. Remember, it’s not personal and more about doing what’s best for the business at a particular point in time.
Be prepared, make a plan and work with your advisers to validate your thinking and assess any legal or financial implications.

Working with your bank and creditors in tough times

Relationships are critical during difficult times. Communicating proactively and transparently with your network of lenders and creditors will encourage flexibility and trust. If you’re evasive, they tend to assume the worst.

In most situations, time is of the essence. It’s important to engage with stakeholders as early as possible before the opportunity for understanding has passed.

For example, by being proactive with your bank, you can work together to identify ways to manage your situation. It could be as simple as selling an asset to reduce debt, particularly in the current environment of high interest rates.

Similarly, if you communicate early with your landlord, they’ll be more likely to help you if your ability to meet your rental obligations is compromised.

It’s also important to work collaboratively with the IRD. They will be more willing to help if you engage with them as soon as you receive your tax bill, rather than at the point of demand.

In all situations, it is worth putting yourself in your stakeholders’ shoes and considering what you can do to make their job easier.

Understanding if there are opportunities for consolidation in your industry

This approach can work in two ways. If you need to dispose of non-performing areas (or those that are a distraction) or if you identify a competitor in distress that could complement your business.

In tough times, it’s important to focus on your strengths, so releasing or turning off any areas which don’t serve you can bolster your financial sustainability.

We’ve recently seen clients capitalise on this by acquiring competitors for below-market prices, after the competitor has released non-core parts of their business. Clients are also taking the opportunity to dispose of ventures with marginal value to their business, sharpening their focus on core competencies or businesses.

Either way, tough times can provide the opportunity to take a deep dive into your strategy and set the direction for the future.

Looking forward

While the current environment can be stressful, it also gives business owners the opportunity to strategise and position for when the tide turns. By working with your key advisers and stakeholders as a broader internal “team”, you can identify small changes and take action to help navigate your business through the storm and into calmer seas.