Unfortunately, as we forecasted back in February, and now officially confirmed, New Zealand is in a recession. Hopefully you undertook, some, if not all the actions we recommended back in February & your business is prepared to weather the economic storm.Is it the end of the world? Absolutely not and often, recessions present good opportunities as competition diminishes and some competitors start to undertake actions that present new opportunities for those nimble and alert enough to take advantage of this opportunity. But first, a warning: we do expect it to get harder before it gets better. While we at Grow NZ Business are naturally wired to be optimists, we take our role of being realistic with the utmost seriousness. We are forecasting July to September 2023 to be the most challenging quarter of this economic cycle.
This is for four reasons, all under the theme of “The Consumer Discretionary Spend Squeeze”:1. The peak of the mortgage rate increases filter through during this period. 2. Consumer “weariness” from inflation & mortgage rate increases; reducing purchasing power, consumer confidence and optimism to spend. 3. The reinstatement of the full tax rate with fuel from July 2023. 4. Unemployment will rise, not dramatically, but we believe it is increasing now and will increase for the balance of 2023. All of the above means in total, the Kiwi consumer has less to spend on discretionary purchases.The upsides we see, or tailwinds as we call them are:1. Supply chain issues are subsiding 2. Freight costs have reduced 3. Labour shortages + increased wage pressures are subsiding 4. Cost of marketing is reducing across many channels And we do expect interest rates to start to decline early in 2024, with a small chance of an early Christmas present in November, 2023, a less than 10% chance though at this stage.
So, to recap what we recommended back in February and even more relevant now:1. Keep yourself in great shape.
Your business will need you at your prime more than ever during a recession – a sharp, optimistic yet realistic mind supported by a healthy energised body helps weather the economic storm.Eating well, regular exercise, mixing with positive, optimistic people & maintaining those all-important regular sleep patterns are key. The other is to be appropriately action orientated without being too hasty. Worrying is like being in a rocking chair, both take energy and both end up going no-where. Don’t worry, assess & act, but without haste – give yourself time to make considered decisions allowing yourself to work through the options, potential upside and risks. Look after yourself so you can look after your business – that is the biggest tip to getting through a recession and coming out the other side stronger than ever.
2. Take care of your cash flow.
Managing your business’s cash flow is critical during times of uncertainty, and many businesses fail because they don’t control it properly.3. Be smart about debt.One way to protect your cash flow is to review your receivables promptly. In doing so, you might notice that some clients consistently make late payments or are flagrantly overdue. Resolve these issues before they become lingering problems or worse, bad debts. As the legendary Warren Buffet said “It is only when the tide goes out that you find out who has been swimming naked” and recessions often quickly exposes those businesses with poor cashflow management practices.
Many business owners see massive corporations taking on billions of dollars in debt and assume those companies are struggling to survive.In truth, they’re typically using that money to grow their operations. The trick with financing is to maintain a healthy level of debt that generates profitable cashflow. Always be cautious about racking up more debt than you can handle & factor in a 2% increase in interest rates to create a buffer in your planning. And only use debt where it creates value i.e. if the interest payments are $2,000 per month & it generates free cashflow & profit of $4,000, that is a good investment, if it generates only $1,000, you are going backwards at a rate of knots.
4. Double down on sales & marketing.
Don’t make one of the biggest mistake we have seen many business owners make when trying to improve cash-flow – they cut back on sales & marketing. And next revenue drops & then the cashflow death-spiral commences…..Microsoft Advertising which often delivers higher returns with more affluent customers. Also look for new distribution opportunities to reach new customers in a cost effective way. A cracking example of this is Buy Kiwi where your business can get in front of thousands and thousands of potential customers at a very low cost of entry.One of the best pieces of advice I ever received was when the economy gets tough, double down on sales & marketing – for two reasons, your competition will probably pull back and secondly, there are often some great deals to be had, again due to lower competition. And it doesn’t necessarily mean spending more, it means being smarter, looking at different channels, seeking out deals, and often doing the opposite to your competitors. A good example is
5. Double-check your inventory management processes.
Doing things the same way for years on end might seem convenient, but it isn’t necessarily cost-efficient. While you’re reviewing your receivables, spend time examining your inventory practices.Are you ordering excessive quantities of certain items? Could you perhaps buy certain products at better prices from different vendors? Or can you negotiate better payment terms such as 60 days instead of 30 days? Consignment options are terrific for cashflow too, removing significant risk. There are many ways to cut costs, so don’t get caught up doing things one way because it’s what you’re used to.6. Capitalise on your current customers.
Talking to your customers is a great way to size up your competitors and potentially increase sales. Existing customers are familiar with your company, and some of your loyal clients are likely more open to upsells. Being able to upsell and cross sell pay off big time in a moment of need.It’s also significantly cheaper to market to people who are already aware of your company and product offerings. Instead of traditional marketing avenues, you can simply offer these users access to perks, such as early access to new items or special discounts. The one we have found the most successful is to understand what other products & services your customers use that you do not currently provide – this is a great way to get validation for new products to add and increase your sales. As long as you show your customers how much you value them, they’ll keep coming back for more (and tell their friends to do the same).
7. Get a leg up on the competition.
Once you’ve secured your existing clientele, recession-proofing is all about finding ways to expand your customer base.8. Never stop marketing your business.Whether you’re in a niche or mainstream market, that means taking customers away from your competitors. If you aren’t familiar with other companies in your industry, it’s time to do some research. Watch their ads, sign up for their email lists, visit their brick-and-mortar stores and visit their social media pages to keep tabs on everything they do. Note any qualities that separate your business from theirs, and do your best to offer something unique.
Yes, it is that important that it gets mentioned twice. Regardless of the economy, never stop marketing your business.One fact never changes no matter what the economic environment is – “You can’t sell a secret”. If consumers don’t know about your company, they can’t do business with you. A lean market allows you to distinguish yourself from other businesses by emphasising your superior product or outstanding customer service. Explore paid marketing efforts as well as less expensive routes, particularly social media and video sites. Platforms such as Twitter, Facebook, Instagram, YouTube and TikTok offer excellent ways to draw consumer attention without breaking the bank. Stay posted for a couple of announcements over the coming weeks to help you & your business – one will be the launch of our Grow NZ Business Marketing Course – to help you take control of your destiny & to improve the generation of profitable cashflow for your business. Stay realistically optimistic and resilient, look for opportunities and most importantly, look after yourself. Your business needs you more than ever!