Simple Steps for Business Success
Starting a business can be rewarding and satisfying and most entrepreneurs start out fuelled with passion, courage, motivation, and a strong belief in their company. But many first-time business owners make common business blunders before they’ve had a chance to stand tall, strong and stable in the industry.
Behind every business there are inevitable challenges. New business owners need to do the necessary background research and seek sound advice from trusted advisors to ensure business will be rewarding for years to come.
David Webb talks to us about the common mistakes SME owners make, how to turn business around and stresses the importance of planning and strategy. It’s these fundamental approaches SMEs should consider which could potentially make or break a business.
What should SME business owners think carefully about before starting a business?
Many SME business owners start out with an idea they passionately believe in and as a nation we encourage the Kiwi entrepreneurial spirit to give it a go. That said there are some common pitfalls which can be avoided with careful planning and consideration. The first step is to write a business plan to map out how you will start and run your business successfully. A good business plan should address the following:
Is there a market for the product?
A fantastic idea, product or service is not enough. For the business to be successful there needs to be demand from a customer base that is a market for the product or service. Carrying out market research, even if it’s limited to obtaining the views of friends and family and listening and acting on their views, is important before commencing the next stage in starting the business.
How are you going to get the product to market?
Once the business owner is sure there is a market for their product/service they need to develop their business strategy. They will need to ask, at a minimum, the following questions and ensure they have a detailed response:
How am I going to differentiate my business from my competitors?
What marketing is required?
What additional resources are required?
How much will this cost?
How will I fund these costs?
Can you afford to get the business started?
The old cliché that ‘cash is king’, is one of the most important mantras for a business owner. For the start up to be successful, the business owner needs to ensure that the business case is strong. Funding should be secured before commencing trade. This may be through equity, debt (eg bank loan) or government grants.
Check statutory obligations
There are a wide variety of laws that govern businesses in NZ and it is your responsibility to ensure you comply with them. You will need to register with taxation authorities for income tax and GST. If you employ people you will have obligations to keep employment records, direct tax and superannuation, take out insurance relating to employees and comply with health and safety rules.
You may be required to hold statutory license or permits.
Whilst the above can be daunting, your business advisers will be able to assist in helping you work through all these issues.
What are the most common mistakes?
Business owners often spend too much time in the business rather than working on their business. That is, they are distracted by the day to day operations and lose sight of the performance and strategic direction of the business.
Business owners must take time to stop and ensure the business is achieving the results they anticipated and revisit the strategy to ensure it meets the needs of its customers.
Overestimating the demand for the new product or service, and lack of cash or funding when the business starts to grow – ultimately these link back to poor definition of business strategy when the business commenced.
How can SME owners identify trouble in their business?
Most business owners will be aware of the classic warning signs such as a lack of cash or fully drawn overdraft facility. This typically results in delayed payments to creditors and direct debits being bounced. Falling staff morale can also be an important sign that a business is in trouble. In our experience, poor management focus on operational, rather than strategic issues.
What’s the best way people can handle a crisis in their business?
Every SME owner should have a trusted external accountant, lawyer and/or business advisor that can help them draw up a plan to stabilise and turnaround their business.
The next port of call is the relationship manager at their bank, ideally with their external advisor. Their bank may be able to provide financial assistance if the position is temporary, or to refer you to a turnaround expert if the situation appears to be a longer term issue.
It is critical that business owners acknowledge the situation they are in and engage with key stakeholders such as management, employees, banks, Inland Revenue Department and trade suppliers, to ensure that everyone understands the position and is working towards the goal of saving the business or, in a worst case, mitigating further losses and possible personal exposure of the directors/guarantors.
At what point should SME owners ask for help?
Business owners need to take action as soon as they identify warning signs in their business. They need to seek assistance as soon as they face situations they don’t understand, or have the experience to manage their way through. In our experience early intervention will improve the chances of turning a business around.
Who can SME owners turn to as trusted advisors?
In addition to a trusted accountant, lawyer or business adviser, regional councils can also be a good source of information. They are currently promoting business growth and may have access to partially funded business advisors through New Zealand Trade and Enterprise (NZTE).
What steps can SME owners take to turn around their business?
If SME owners could take one thing away from this article, it should be the importance of short to medium term cash flow forecasts.
Once they identity warning signs, they should start to prepare a realistic forecast and seek the input of their external advisors to assist them in the preparation of a turnaround / recovery strategy.
A cash flow forecast will provide the bank with assurance that the business has matters in hand and has a feasible plan for recovery. It will also allow SME owners to plan payments to creditors and hopefully agree to repayment plans whilst maintaining ongoing trade.
It’s important to engage with the IRD and banker early. If a problem is brought to them with a solution, they are more willing to work with a business. If the SME owner does not engage with these two key stakeholders, or takes a confrontational or aggressive approach, the IRD particularly can become an aggressive creditor in recovering its debt.
What can new SME business owners do to keep their business on track and stay on track? And why is it important SME owners receive this kind of help?
It is important to spend time evaluating the business strategy, preparing and reviewing financial and cash flow forecasts, talking to a trusted advisor and having a good relationship with your bank relationship manager.
In addition there are several other initiatives to help SME business owners. Local councils and chambers of commerce run a number of programs to help business owners and many are now partly funded through NZTE.
We have also seen business owners use business mentors or the concept of alternative boards, where several business owners come together to discuss issues in their business, to assist the governance and strategy of the business and achieve a good mix of working in and on their business.
In what ways can PPB Advisory help SME business owners?
PPB Advisory has extensive experience helping businesses overcome challenges which may hinder their success. We have developed a health check which is designed specifically for SMEs. By undertaking a one to two day strategic review, we are able to identify the areas that require attention and where possible, we will develop a turnaround plan in collaboration with the business owner and its bank.
How have business owners responded?
SME business owners may initially be hesitant to seek assistance as they have invested so much in their businesses, both financially and emotionally. However, we find that once they do, they are comforted to learn that their businesses can often be stabilised and turned around to a more sustainable footing.
What has been the impact of PPB Advisory on businesses in NZ?
PPB Advisory has operated as a genuine turnaround advisor, assisting businesses of all sizes and industries to optimise performance and ultimately enterprise value. This includes the successful restructure of a number of businesses, sourcing new sources of finance and improving relationships between businesses and their banks.
To find out more, visit www.ppbadvisory.co.nz