New Year's Resolutions for your business
During the Christmas/New Year break many people take some time to reflect on the year that has been and...
Catastrophe? Or not so bad, really? For New Zealand businesses, the view of 2020 depends on which sector they’re in, or even their location.
While the nationwide lockdown created significant challenges for everyone, many parts of the country have adapted well to the ‘new normal’. In fact, the new normal looks a lot like business as usual. For others, the picture is more nuanced.
We interviewed directors from across Baker Tilly Staples Rodway’s national network to find out how their clients have fared this year, whether they had any surprises or lessons from COVID-19 and how they see the business environment shaping up for 2021.
I’m pleased with how resilient businesses have been. While tourism and education sector clients are still significantly impacted, many businesses, especially those selling cars, household furnishings and DIY, are doing extremely well. Unlike the GFC, where people were worried for their jobs and weren’t spending, we haven’t seen the same nervousness this time. That may be because we haven’t had the rolling lockdowns they’ve had overseas – and the psychology of feeling vulnerable every time you leave the house.
The wage subsidy scheme was a very good move by the Government to stop the panic of April/May and prevent sudden reactions like getting rid of staff. It gave everyone a breather to assess how things were actually playing out, and by August the predictions of doom and gloom were largely gone.
Arguably, the changes we’ve seen in the retail sector with the shift to online are possibly just an acceleration of what was already going to happen. For me, the biggest surprise was the massive house price inflation we’ve seen. The failure of the predictive models is without precedent in our lifetime. Our economy has so many moving parts, it’s taught us you can’t just look at one aspect and make a prediction.
The key issue facing us now is supply chain holdups. The focus for the next few months will be how businesses can service their clients and keep up with demand resulting from ongoing lockdowns around the world. There’s still a great deal of pent-up demand, which bodes well for next year if we can manage the current situation.
One of the main issues we have seen has been the unpredictable nature of the fallout from COVID-19. Most economists predicted a far worse position than we are currently in. Just after lockdown the view from investors was to wait six months before investing, as that would be when good deals came online. No one could have predicted the extent to which the Government has intervened in the economy, resulting essentially in even lower interest rates and increases in asset prices. The smart money, it would seem, moved early, and those who waited with their money in the bank have suffered a real reduction in wealth. This has made doing business exceedingly difficult.
But foresight has really helped in other ways. Firms who had the technology infrastructure in place to manage remote working and digitised services were best placed to ride out the disruption, as were those who had a trusted adviser who could help them manage complex issues. It’s good to see so many of our clients have weathered the storm well and are ready for whatever 2021 may bring.
In fact, some clients are having record days and months. As a result of COVID-19, businesses have spent time reviewing how they operate and minimising costs, which will pay dividends in the future.
As a region we have a wide spread of industries, which helped to insulate us from the impacts. Fortunately, the kiwifruit industry was able to continue during lockdown, albeit with stricter protocols in place. However, there is an ongoing struggle with getting sufficient levels of labour, as that industry is dependent on offshore labour.
The ongoing issue for our region continues to be infrastructure not keeping pace with our growing population, like many other New Zealand towns and cities. We’re seeing a huge amount of forward work on infrastructure and construction, which will be good for businesses in those sectors going into next year.
We’ve been pretty well insulated from the impacts of COVID-19 here in Taranaki. Agriculture clients are largely unaffected, our domestic tourism spend is up, and people are really busy. With borders still closed, many clients are actually finding it hard to get staff, particularly in construction and professional services (including accounting), but that’s a sign that our economy is chugging along pretty well. Our Taranaki firm is in growth mode, which reflects how buoyant the local economy is.
The Government’s Regional Business Partnership Scheme has really helped the area’s businesses through any struggles. It’s enabled them to get free business advice, which has helped quite a few people understand how they can improve their businesses for the long term, not just through COVID-19, which is a great foundation for the future as well. Other lessons have been equally valuable, such as the importance for SMEs of being a bit more conservative with spending.
The only caveat is that while Inland Revenue has been great at showing leniency around paying back taxes on time, that mountain of debt in most cases hasn’t gone away and businesses now have to trade out of it. Also, many businesses are suddenly owing their staff a lot of leave, as no one’s been going on overseas trips, which creates a liability on the books that needs to be addressed.
Supply chain concerns have also come to the fore recently, which is going to be a real issue if things don’t shift. Construction clients have told us appliances for new builds have long delays, and there’s a three-month lead time on some computers. This could actually create a bit of a supply-led recession next year if goods aren’t being manufactured overseas because countries keep going into lockdown.
Despite those issues, everyone has shown an incredible ability to be agile. Things are looking extremely positive for Taranaki.
The drought has really been the major issue in the Hawkes Bay this year. So many farmers have been affected, having to sell off stock during the dry season then buy it back again, which is hugely expensive. Otherwise, we keep waiting for things to bite and they just haven’t. We’re food producers in Hawkes Bay, so a lot of businesses carried on as essential services during lockdown and the wage subsidy was a huge help for those who were impacted by COVID-19.
When it comes to remote working, things haven’t shifted as much as you might think. The distractions of people having fun in the next room means I’ve found working from the office easier, and my team has adapted back to working in the office. Normally over our busy period (part of which coincided with lockdown and level 2) they’d be doing 10-20 hours’ overtime every week, but it just wasn’t possible under lockdown.
However, increasing digitisation has definitely helped businesses grow. One client, a perfume retailer, went completely online during lockdown and it went so well they haven’t gone back. A brewery who went online has now realised the potential for digital offerings to supplement its bricks and mortar business.
A big change will be felt in the tourism sector. This year, domestic tourism has meant a lot of No Vacancy signs – tourism has actually gone up – and COVID-19 only struck at the very end of the cruise ship season. In late 2020 and early 2021, we could have expected a ship per day, which won’t now come. The other looming issue is how the horticulturists are going to get the fruit off the trees and into their boxes. There is only a fraction of the usual Recognised Seasonal Employer scheme workers here and local labour just isn’t filling the gap. Unlike Queenstown, we don’t have a lot of displaced tourism sector workers looking for new employment.
Despite that, with the world in the state it’s in, things are probably at the worst they could possibly be and we’re still pretty steady. I feel nervously optimistic that we’ll carry on OK over the next 12 months.
This has been a year of learning, and the lesson has been that everything can change overnight. That means having a good business plan, but also being prepared to throw it out the window and try something new. Because Wellington is a government city, and the public sector has actively encouraged remote working, hospitality and event management businesses have suffered significantly. This has also had major impacts on retailers and small businesses in the central city. I haven’t sat in a traffic jam for the past six months – Wellington feels like it usually does during the school holidays.
The way small businesses have adapted is really inspiring. Necessity is the mother of invention, and it’s who we are as a nation. I’m proud of my clients, who are doing their best to improvise. Hospitality businesses are now delivering to offices. People are trying to come to us, rather than us going to them. And luxury car dealerships are doing so well from the travel drought, they can’t get enough stock. They’re now calling previous customers and offering to buy back their cars for the full purchase price because they know they can sell them on at a premium. Jewellers are doing the same with watches.
As adaptable as people are, I do think we miss that social interaction. People have mentally written 2020 off, but I predict we’ll see a return to more normal ways of working next year. Event management companies have full books again for the next few months, so I’m feeling the future looks a lot brighter.
One of my clients commented to me during lockdown that they’re glad they’d been through the earthquake in Christchurch as that really helped them during COVID-19. They had a plan in place quickly, looked after their staff and clients and that resilience built up during the earthquake period has stood them in good stead. It was nice that the IRD were also very understanding and supportive of clients during this time.
However, the Christchurch hospitality industry was struggling pre-COVID, generally due to too many players in the market, and it continues to struggle. Whilst economically things seem to be tracking better than expected, there is still uncertainty and I think there are still some bumps to come next year. My feeling is: expect the unexpected!
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