It's drizzling in the capital late on a Friday afternoon. A thick mist settles on Nicholson Bay, and most Wellingtonian's thoughts are turning to how the miserable weather will ruin their weekend.
Well, not all Wellingtonians.
From his desk in Eastbourne, Brent Hayden observes the rain, shrugs and gets back to the task at hand - managing a growing company that carries on, come rain, come shine. And he's loving it. Asset Management Network is a fast growing, successful company that combines the resources of some 60 small glazing businesses around the country to offer a single point of contact to mainly corporate customers. Started on just such a Friday night in 2002, Hayden's company now has dozens of large clients and handles 20,000 glazing transactions a year.
No wonder you can't wipe the smile from his face.
The success of Asset Management Network is due to many factors. It's well managed, it solves a real problem, it has customers who can pay - and on time. But along with many hundreds of Kiwi SMEs, Asset Management Network faces a new set of challenges: a slowing economy, rising interest rates, falling confidence and a squeeze on anything powered by oil.
All reasons to be cautious, says ASB chief economist Nick Tuffley. "But it's not all doom and gloom. It's a year of subdued growth but a few things will pull the economy through."
Tuffley lists tax cuts, commodity strength, and the prospect of falling interest rates as positives.
And what does a tough economy mean for your succession plan - that is, your plan for growing, investing, selling and retiring rich?
The good news is that a slow, tough market could be the best thing that ever happened to your business for two reasons. First, economic downturns provide ideal opportunities to reduce waste, improve efficiency, refine systems, invest in staff and marketing, and - most importantly - concentrate on making every customer a satisfied one.
Second, a succession plan requires business owners to tidy up the internals to a point where a potential buyer or investor can clearly see the opportunity. It could be that preparing for an economic slowdown could be the best succession planning you can do.
"An economic slowdown may be just what the doctor ordered - a chance to stop and focus on internal practices and processes. If so, you're already halfway towards creating an effective succession plan," says Aaron Wallace, a succession planning expert with accountants Hayes Knight.
Next time the economy turns tough, think positive. Here are five internal exercises you can do that both protect you from turbulence and enhance value to a prospective investor.
Keep your great staff
It's tempting for business owners to make kneejerk decisions about staff in tight times, without thinking of the long-term consequences. Shrinking your payroll might reduce costs and look good on a balance sheet, but it's no strategy for growth.
"Employers tend to look at the cost model, rather than the growth model," says Jim Roberts, a partner with law firm Hesketh Henry. Interestingly, Hesketh Henry hasn't seen a flood of redundancy requests from its clients, which would tend to signal any serious economic downturn. "It appears employers are holding their breath. I think people have bought into the fact the economy is going to level off," he says. "But that could well change."
Invest in training
Businesses that overreact and cut staff also run the risk of being caught out when the economy picks up again. And given the tight labour market, it's a tough time to recruit. Instead, try refocusing on training staff for changing market conditions.
"Training might be an ideal means to encourage greater flexibility amongst your staff. Look at providing your employees with a range of skills so that they are adaptable," advises Roberts.
Keep employees informed and engaged so they don't fear change and are able to adapt to varying conditions. Engaged employees are also playing an important marketing role, as traditional forms of marketing give way to the growing influence of word-of-mouth marketing. Staff who enjoy their work and understand their context create a better customer experience, leading to greater customer loyalty and, ultimately, profitability.
This kind of staff loyalty is also critical for your succession plan. Afterall, if you don't want to, or don't plan to be in the office all day every day, who else will? Hopefully it will be your skilled and motivated staff. Now's a great time to appoint managers and get them trained.
Check for sustainability
A period of slower economic growth is also a good time to check on the financial health of your company. Aaron Wallace suggests cashflow modelling to make sure your business is sound. Cashflow is one of the first things to suffer when things change. Is your business geared up to generate cash when you need it?
"Now is the time to start looking inwards in your business as opposed to outwards. Make your business robust because that will reduce the risk and increase the value for you when you go to sell it," says Wallace.
Stabilise your company and reduce your risks. An economic slowdown is not the time to take money out of the business and buy a new sports car, he says.
"People who strip cash out of their business rather than reinvesting it, will have a hard time in the tough times."
Nor is a cash strapped business going to draw a high price when it comes to selling. Succession planning is a three-to-five-year process, and at some stage you'll likely go through a slow growth period. "Be like a Boy Scout, be prepared!"
Pay attention to the details
It's more important than ever to stay on top of your debtors. Proactively chase up debts as opposed to just letting payments drift in. Stay abreast of how much tax you are going to owe. Forecast your provisional tax and pay it accordingly. And don't stop marketing.
"The first thing people stop is marketing. And you need to market when you haven't got the sales," says Wallace.
The past five or so years have been economic good times, but they've also allowed a lot of businesses to fly by the seat of their pants. A good succession plan will require you to:
- Check your contracts with staff and suppliers: are they updated, have they been signed, do you actually have them?
- Revisit your borrowings: perhaps your overdraft is better as a business loan; or can your terms be renegotiated?
- Expose dodgy accounting or slack recording of hours or work done: your systems may not be capturing all that billable time.
- Perform an audit on your suppliers: how long is it since you put the blowtorch on your telco, utility or your cleaners? "Now's good," says the TelstraClear ad. Indeed!
Plan to Succeed!
Succession planning should ideally stretch out three years in advance, but one year is the absolute minimum. Be a bit conservative over the next year and don't over-extend the business. Trading without a buffer is trading recklessly.
It's also vital to follow the advice of Stephen Covey, author of The Seven Habits of Highly Effective People, and "begin with the end in mind". What will your business look like when you sell it? What story will the numbers tell potential investors? What value will it deliver to you?
Turns out tough times are great times for optimists like Brent Hayden. Why not make it so for you?
This story originally appeared in Succeed.
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