PKF International
PKF Poutsma Lemon Limited
PKF Poutsma Lemon Ltd, Keri Keri, New Zealand
Accountants and business advisers

Easy to be in Business and Easy to Fail in Business

October 2017

According to a June 2015 World Bank Survey, New Zealand ranked the easiest country in the developed world to start a business and the second easiest country in the world to do business in general. I'd just like to add our immediate neighbour Australia ranked at number 4.

There are few restrictions on establishing, owning and operating a business in NZ and online Government sites allow for the paperwork to be completed within hours.

There are several initiatives from the Ministry of Economic Development to help people start businesses.

Our tax laws are friendly and meant to be easily understood, and the tag line for the IRD is "It's our job to be fair" and generally speaking if you abide by the rules they are.

NZ is a nation of small businesses, which is defined as being 0 to 20 employees. Unfortunately large numbers of these small businesses do not achieve what they are setup to achieve and far too many disappear and fail permanently.

Statistics in NZ tell us that for businesses with no employees the survival rate is 50%, with 1 to 5 employees it is 65% and 6 to 19 employees it is 69%.

Here are a few things that need to be kept in mind if you are starting a small business.

Because it's a small business the most contributing factor to success or failure is the business owner and the running of the business. Understand and accept what you are good at and what you are not good at. Don't be shy about asking for some help.

Spend time "on the business". If you are too busy to look at how the business is going, where it is heading and how to improve it, it will stagnate and more than likely fail. Set aside some time and get help if you need it.

Do your sums, do some diligence and "what if" scenario testing before committing into big investments. Don't rely on "gut feel". No one can accurately predict the future and business does require some risk taking but at least try to understand what the real costs are likely to be, what repayments you have, and how you are going to increase sales to do a bit better than break even. If you need advice or someone to work it through with you, don't be shy to ask.

Before you sign anything know what you are signing up for. Understand what a personal guarantee really means to you, Banks want them and so do many suppliers.

Pay the IRD, they have got to be one of the most expensive lenders of last resort. One of the signs that a business is in trouble is not paying the IRD. And why? They don't immediately chase you for the money and they are an "anonymous creditor". However the bite is a lot worse than the bark. Before you get into trouble with the IRD talk to your accountant, and if that has already happened it's an even better idea to talk to your accountant.

And remember Cash really is King, so make sure you manage your cash flow from purchase to collection. And if you need help to setup good disciplines, ask.

There really is no reason for the number of business failures that occur. The impact on families, individuals, other businesses that are creditors and customers is significant.

Look after your business by looking after yourself, follow the basics and ask for help for the stuff that you need help with.

 

Alison Lemon, Director

 

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