Better Business
Issue Thirty Six
This month:
Lessons from 2009, planning for 2010/2011
Way back in mid 2007, the global economy began to tumble into financial crisis as the realities of the sub-prime mortgage market in the United States set in. The result was a catastrophic and systematic failure of the financial system that left few countries unscathed.
New Zealand definitely felt the effects of the crisis, although most would argue that we were affected later and with less venom than expected, and we certainly held up in better shape than many of our peers in the northern hemisphere.
2009 – What happened?
Over the last year we have seen a lot of pain in the market. There is no doubt that the downturn has affected a very large part of the market, and had a much larger impact than was widely first anticipated. Of course there are pockets of businesses that have done well and will continue to do well, but for the vast majority there has been significant hardship.
There are a few common themes that seem to occur reasonably often when we are talking to businesses in these tough economic times that we are facing:
Declining Sales
Extremely tight cash flow
Plummeting Profitability
Pressure on margins
Increasing Costs
Stress on management
Time pressures
Unable to even think about strategy
2010 – Now that the pain is over will it all be plain sailing?
Wouldn’t it be wonderful if we could seriously believe that statement? Perhaps at the back end of 2010 we will see some positive impact of the green shoots that seem to have been talked about in the media so often, and for some time now. We still believe that there is more pain to come over the first six months of the year at least. We have the hangovers from 2009 to deal with, where many businesses just hung on by the skin of their teeth, only to come back after the Christmas break paying out holiday pay, GST, PAYE and now income tax all while receiving poor collections themselves. Anecdotally we have heard that collections over January and February in 2010 were the worst that businesses could remember. We are hearing of more and more businesses facing liquidation or receivership at the moment as those cash flow issues come home to roost. Perhaps later in 2010 we would expect to see a recovery and some growth, but again that can bring its own challenges as business run the risk of over-trading on a thinly capitalised balance sheet.
Watch out for the next edition of the better business newsletter which will include strategies for 2010/2011.
Disclaimer: Information contained within this document is of a general nature and does not constitute advice. Readers are cautioned not to act or rely on it without first seeking professional advice.
