Business

Katrina Shanks is the chief executive of Financial Advice New Zealand.

OPINION: The warnings have been there for quite some time to expect big and ongoing increases in the cost of living this year.

We know the formula. They’ve been driven by higher wages due to our tight labour market, higher input costs due to freight cost increases such as the price of fuel, higher household costs (rents, rates, maintenance), and by higher interest rates designed to slow spending and get inflation under control.

It’s a vicious circle.

Warnings have been particularly aimed at those with mortgages due for renewal this year, but they are affecting everyone.

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And now those warnings are beginning to show up in the data.

The latest report from credit reporting agency Centrix shows the number of consumer accounts in arrears climbed by 11.8% in March. This compared to 11.5% in February and was mainly for buy now, pay later and unsecured personal loans.

Centrix said it was clear the increase was due to many more people feeling the cost of living pressure to meet repayment obligations. Mortgage arrears also climbed in March, for the eighth consecutive month, with 19,300 residential mortgages reported as past due – up 26% year-on-year.

And businesses are not immune, and it’s here there is even greater concern, because when businesses suffer and struggle, so do their employees.

A business feeling the squeeze and struggling to pay its way can lead to layoffs and families without an income as costs are trimmed in an effort to stay afloat.

Centrix says this is happening more and more.

Their data shows in March there were substantially more companies defaulting on their loans than at the same time last year.

In the construction sector, defaults were up 13%, in retail, 12%, hospitality 10%, and in property defaults were up by 3%.

Centrix said in the hospitality sector alone the more than 28,000 registered companies (4% of all registered companies) are right now two-and-a-half times more likely to fail than the typical New Zealand business. They accounted for 10% of all company liquidations in the past 12 months.

It’s a dire situation for many, and remember that something like 95% of companies are small to medium enterprises that are family-owned and operated and often don’t have either a lot of spare cash in the bank or a parent company to bail them out.

So, what are the options for a business that finds itself behind in business loan repayments?

When a customer is in arrears with repayments, they normally get escalated to a risk manager in the bank who will look at the customer’s options.

These can involve interest-only payments that can reduce the payments due. Or reduced payments over a longer period.

But to do this, the bank needs to have an in-depth understanding of the businesses’ current and future position and understand how it will trade itself out of the difficulty.

The business operator will have to spend the time on a business plan to formulate how that could work.

This may involve lowering inventory levels, which means less money is sitting dormant tied up in goods in the storeroom.

It may mean increasing margins, though this comes with a risk of losing customers who, in tight times themselves, may decide to shop around.

Other options include reducing credit for customers who are slow payers, dealing with fewer suppliers, which may give mean you can negotiate better terms with those you keep, getting longer credit terms with your supplier, or moving to cheaper premises.

There are many levers that you can pull in a business which can help with your cashflow.

But if your business is in hardship and you’ve tried some of these options and they haven’t been enough, the lender will consider hardship solutions.

But be aware this will be noted on your credit file and that may impact your ability to borrow in the future.

There are several rules of thumb to help you repay loans and get through the hump and back onto a sound footing:

• Reach out for help from the lender as soon as possible – they don’t want your business to fail so they will try as hard as they can to find a solution.

• Talk to someone else – the problem should be shared and talked through with a mentor, colleague, or partner. This will help with your stress. You don’t need to be alone.

• Plan, plan, plan – sit down and work out a way forward. Doing the same thing gets the same results, so think about what you can change, or understand the environment and ask yourself will that change make a difference.

• Work out how much breathing space you need and build that into your plan.

The bank is not your only option to obtain funding – there are non-bank lenders who are reputable and offer relatively good terms. In many instances, the interest rates will be higher than a traditional bank, but they are a good short-term solution if you need to consolidate your debt.

If your business cannot trade out of its financial position, seek professional help as to what your next steps are. Being a business owner can be a lonely, exhausting and stressful – you don’t have to do this alone.

Katrina Shanks is the chief executive of Financial Advice New Zealand.

OPINION: Businesses were underwhelmed with what the Budget offered up .

There was definitely nothing to get excited about, especially from a business point of view.

Hospitality New Zealand, which represents around 3000 mostly small businesses, said it was a disappointment with little in it for businesses of any size, and business accounting software giant Xero agreed.

The areas the Budget appeared to be silent on were the challenges businesses are facing.

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There were no initiatives on removing barriers to business growth, nor were there any investment incentives for small and medium-size business and no innovation incentives.

An understanding or clear pathway towards a long-term vision for business as a key driver of the economy would have shone some light at the end of the tunnel for many.

It was pleasing to see moves around the cost-of-living pressures – free medical prescriptions, 20 hours’ free early childhood education extended to two-year-olds, transport subsidies, new heating and insulation installation subsidies.

One surprise was the increase in the rate of tax trusts pay, to take them in line with the top personal income tax rate of 39%. This followed a 50% jump in income subject to the trustee rate, from $11.4 billion in the 2020 tax year to $17.1b in 2021.

And though most trusts tend to be around family homes, some businesses are run by a trust, so this will cause some businesses to have to reconsider their business model.

This will be costly for many as they seek professional advice and undertake the legal changes required.

There were some wins for business in the technology sector.

The 20% rebate for the gaming industry, $26m to help business boost digital skills gaps and increase women’s participation in the sector, and $30m for horticulture technology was welcomed by companies that had lobbied hard for more help.

It had been feared if New Zealand did nothing then there would be a tech brain drain to Australia, which had recently introduced a 30-45% rebate.

However, some in the wider business community asked why the only win for business in the Budget was so narrowly focused when small companies across the economy are continuing to do it hard right now – an extension of the Covid years.

In particular, the lack of funding for digitalisation of small and medium businesses was seen as a missed opportunity that will ultimately stunt productivity.

Xero New Zealand country manager Bridget Snelling was forthcoming in this regard.

She said she would have liked to have seen financial support for small businesses’ digitalisation, which is a key driver of increasing economic productivity.

She pointed to NZIER research that showed a 20% uptake in cloud-based tools could add almost $8b a year to New Zealand’s GDP.

The solution? Digitalisation grants paired with other investment to remove the barriers of digitalisation to help stop New Zealand’s slide down OECD rankings for digital competitiveness.

Concerningly, research shows for New Zealand to catch up to the OECD average of GDP output per person, each person would have to work an extra eight hours a week! But to catch up to Ireland, the most productive country, we would have to work an extra 10 hours every working day!

“To address our productivity challenge, digitalisation is absolutely crucial, and because small business makes up 97% of the businesses in our economy and contributes a quarter to our GDP, it is imperative that the Government invests in digitalisation,” Snelling said.

“Despite a key objective of this Budget being to secure our economy, it suggests that small business is clearly not a priority for this Government which is disappointing.”

But all is not lost, because the Budget did throw up some nuggets of optimism for the economy as a whole, and what’s good for the economy is good for business, and vice-versa.

Though there is a risk with the Budget that the increased government spend could further fuel inflation and so put more pressure on interest rates, all signals now suggest New Zealand will avoid a recession (earlier predicted to hit about now) and all the business pain that comes with it – declining sales and profits and resulting layoffs, cuts in capital spending, marketing, research, as well as reduced access to credit, slow collections, and more businesses in hardship.

Certainly, Treasury is forecasting a recession won’t happen.

There is light at the end of the inflation tunnel as those interest rate rises slowly haul it back, with predictions it will be around 3.3% by the end of next year.

For businesses, that can’t come soon enough.

Parmesh Chandra​ is at risk of losing his business and his home after AH Construction Services, a firm that hadn’t paid GST for six years, went bust .

He said it owed him $11,000.

His experience reflects the cascade affect that failures can have, as liquidations often leave tradespeople and smaller operators with little or no payout.

Chandra started his company, ASP Trucking​, in October last year, investing in a truck capable of carrying 44 tonnes​.

The company’s second job was for AH Construction Services, which was put into voluntary administration after it emerged it had failed to pay GST for six years.

“It’s a bit tough to come back, but I’m trying my best, it’s getting harder,” Chandra said.

Bryan Williams is handling the liquidation of A H Construction Services Ltd, and said any dividend was unlikely for unsecured creditors, unless a windfall appeared that had not yet been identified, which was unlikely.

He said ASP Trucking Limited was recognised as being owed $8405, but no claim had yet been received.

Chandra said he would be submitting the claim this weekend, and the current amount missed another job he had done for AH Construction.

Chandra, who is 54, has been driving trucks for most of his working life and said he felt AH Construction’s director, Ajay Singh, had been misleading workers.

”My business was very new, and he said ‘if you work with me, I will pay you’, but he went into liquidation,” Chandra said.

Chandra is struggling to find a full-time contract in an industry where activity is slowing, and company failures are increasing.

He said he was working day-to-day, and often only found out if he had a job on the evening before it was happening.

“In this situation, I can lose my house, because it’s hard to maintain the mortgage,” he said.

Chandra’s home loan interest rate re-fixes in July​, and will increase significantly, He said he would contact his bank next week to discuss options, because he doubted he would be able to keep up with higher interest repayments.

He bought his home in Papatoetoe roughly two years ago, when the market was running red-hot and prices were high .

Williams recently sold off 350 of the firm’s vehicles and pieces of equipment in an attempt to recoup some money to repay creditors.

The first liquidator’s report into the company suggested the huge sell-off raised a little over $8 million on the day, with an expected additional $2.38m to come from later sales.

Despite this, the report noted the company was unlikely to be able to repay any of its unsecured creditors, many of them in the trades.

Money from the large sell-off was enough to pay back secured creditors, and also almost enough to pay back the majority of preferred creditors, which included $5.3m owed in GST, more than $2.5m in PAYE tax, and $32,000 owed in holiday pay to employees.

AH Construction Services owed about $7m to unsecured creditors, $2.9m of which was owed predominately to tradespeople.

Law firm director Brent Norling said contruction company failures were on the rise, resulting in the amount of work coming from the sector rising from roughly 25% pre-Covid to about 70% today.

He said there was often a delay in the dominoes falling.

”For example with Mainzeal and Ebert Construction , where there are large companies that fail, it might take a year or two before the subcontractors ultimately go into liquidation themselves, because they do the next job to pay for the last job, and it kind of continues.”

Norling said Inland Revenue had also previously been asked to delay some enforcement action, but that grace period had now ended. ”Now we see IRD stepping up enforcement.”

Waterstone Insolvency principal Damian Grant said there was no need for new or added protections for small trades in insolvencies, and that such protections were infeasible.

He said added protections would increase the cost of employing smaller tradespeople, which would make them more expensive, and less attractive to work with.

Grant said tradies would price jobs with the expectation of making a profit, and would price-in the small chance of a company going bust.

“You always know there’s a risk you won’t get paid, and the vast majority of time you do get paid.”

He said small operators were sophisticated enough to factor the risk into pricing.

There was a ripple effect from developers going bust, but Grant said the ones that really suffered were those that did most of their business with the defunct company.

“If you have one client and that client goes, then you’re in big trouble, but usually you’ve got 20 clients and no one client is more than 10-15% of your revenue,” he said.

He said smaller operators were also more at risk if they had expanded during the good times, and now had a larger team that they had to keep operational during a market slowdown.

Rachel Klaver is a marketing strategist, specialising in lead generation and content marketing.

OPINION: One of the words commonly bandied about by marketers is “storytelling.”

I love this element of marketing and use it all the time to help explain concepts, make the message more relatable or memorable. I’ve created analogies that my clients use over and over, to help themselves change mindsets and reframe how they do things.

I don’t have an issue with storytelling at all. I do have an issue with the vague explanation of what it is in a business setting and how it’s often overcomplicated.

For me, a story in business need to be like stories in every other area of our lives. We need to feel connected to it, it needs to be easy enough to follow, and interesting enough to take all of it in. It should never be like the half-written novel sitting discarded on my bedside, because I can’t bear to be bored by it any longer.

For business, a short story is often a good story. A simple, short story is even better.

One of the simplest stories to tell is the Metaphorical-Solution type story. It takes an everyday experience, either directly related to your work or just something people will identify with, and connects it to an area of your business.

I’m going to break down the steps of that later, but before I do, let’s take a look at why storytelling is so important when it comes to business.

It helps us develop an emotional connection with you, the teller. In a world where AI is creating content left, right and centre, and with people communicating so much via text, email and social media messages, feeling a connection to a person within a business is a powerful plus.

Storytelling makes us understand data and facts in a way we remember . We can put them in a context that stops them feeling abstract. It helps paint a picture of the numbers we’re trying to convey.

Our brains are hardwired to remember stories. As we listen, we’re engaging multiple areas of our brain, and it activates the language processing part of the brain, along with our emotional and sensory areas. This helps us both retain the information and know how to access it later.

Stories can take a complex issue and make it simple. This only works if we refine our story and remove all the bits that distract us from the core message. This can be hard if you love details, the minutiae of life, but it’s essential when it comes to telling a story, especially in a business setting.

If you want to change a mind, a story is an excellent way to start. They can help shift a belief, or how people see the perspective of someone incredibly different to them. The more someone becomes invested in the story of a character, the more likely it will help change a perspective about that person’s experience.

While data can help give us the facts, storytelling can help us be inspired to make changes related to those facts.

There’s a wide range of formats and story types we can use to tell a story in a business context, but the Metaphorical-Solution one is an option for simple, everyday events we can use for stories every day.

I recently used this with a client as we were working on his content for LinkedIn. None of his posts were getting engagement, so we took one of the themes already shared in that post, and found a really simple story to illustrate it. Instead of sharing a bare fact, it turned it into a heart-warming story so many people could relate to. The story he shared? The simple act of popping his phone in another room so he could sit and play with his daughter, and the feeling of joy when he realised he’d been able to be fully present with her.

So how would you tell this story?

There are two starting points for this. For beginners, the first step is thinking about a point you’d like to tell a story to illustrate.

I tend to work the other way around. I’ll often experience or notice something (for example, realising my dogs always come to the kitchen when I get the chopping board out of the cupboard), and then find a way to use it to teach marketing.

Either way works.

You need to be clear on what the message needs to be. We don’t want to have to explain the message at the end, so the analogy needs to be one that makes it super clear. Write this down.

The illustration you use needs to be relatable to your audience. Ideas around family, pets, hobbies, and sports work well, and better than “that once in a lifetime experience that only a few people have ever seen or done.” The goal is for people to easily picture it.

Create a beginning, a middle and an end. For example, with the chopping board story, the beginning is me getting the chopping board out. The middle is me finding out that while they all hope to get something as I chop, sometimes it’s not something they want to eat or are allowed to eat. And the final part is, that they get rewarded often enough to want to come back the next time the chopping board comes out.

It helps to add little personal touches. I might say, “Spud loves anything green like lettuce and broccoli, while Milly won’t touch it. But they both love cheese.” You want them to find personality in the story.

As you finish the story, you can thread through the reason for the story. I used this metaphorical story to talk about email. I said, “When it comes to email, be the sound dogs run to. Sometimes it will be opened and one person will love it, and another will not. Sometimes everyone will think it’s amazing, and every now and again, no one will. The trick isn’t to try and please everyone in every email. The trick is to give people enough of the stuff they like, enough so they’ll still want to open the next email and the next. Be the sound of that chopping board, hitting the bench with all the hope of that tasty cheese treat. “

A good story can be told in writing and in person. It has a rhythm to it, and it doesn’t have anything in it that distracts from the core message. It’s a good idea to check that people understand it (so test it out before making it live if you can.)

Often the first time we tell a story it can feel clumsy. The more we tell it, the more we feel at ease with it. A good story can be retold in a post or a video, or during a presentation over and over again. It helps people learn, and the familiarity helps people slide into a relaxed mode, ready to hear and learn.

A story can help cut through all the noise on social media, can help people see a glimpse into your life, and build your business. They can, and should be simple, relatable and help people connect with us.

If you want your business to be remembered, perhaps it’s time to start telling more stories.