SMBs warned to brace for business finance crunch

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While a capital gains tax is no longer an issue, SMBs are still confronting the prospect that securing business finance is set to get a lot harder, a scenario that may spell disaster for many.

Former BNZ general manager small business and now managing director finance at Vega Lend, Harry Ferreira (pictured), today urged SME owners to smarten up their business finances ahead of what will be difficult times.

“The fact that business sentiment is down in what some are still calling a ‘rock star economy’ is evidence many business owners and management are already sensing that something is wrong. Low unemployment looks good for politicians, but it’s not good for business.

“For example, low unemployment means business owners can’t find the right staff – a situation that is made worse by the fact that tighter visa restrictions are leaving too many businesses short-handed.”

Ferreira said, in addition, rising costs like the recent fuel taxes and an increase in the minimum wage – combined with a tightening housing market – and a banking sector that is running scared after the Australian Financial Services Royal Commission, are going to make conditions close to impossible for the average Kiwi SME.

“The contracting of the housing market will also have a significant impact on small businesses. Your trades people like builders, plumbers and electricians are the lifeblood of the economy and when housing suffers, they hurt.

“More than 65 per cent of SME owners fund their businesses by using the equity in their homes or residential property. However, less equity in residential housing, coupled to labour shortages stifling growth and higher costs from taxes and wages mean lower profits, which then makes it harder to get finance. Without finance, business slows down.”

Ferreira said that small business owners need to take stock and act now to ensure that they can succeed in a tougher business climate. He offers the following three tips on how to do that:

1. Evaluate costs

“Now, today, this minute is the time to eliminate unnecessary spend. When the housing market contracts, business will get harder and your overheads will kill you. Reduce costs by price shopping on everything from office supplies to rental space.

“Consider renting flexible space with no fixed lease commitments. Modernise your marketing with automation, and make sure you are using your time efficiently,” Ferreira said.

2. Smarten up your borrowing

The one thing going for businesses is that interest rates are at historic lows, but not enough businesses are taking advantage of them.

“Shop around. Speak to an adviser who can negotiate on your behalf and aim to fix your mortgage or debt as low as you can for as long as you can – even three or four years if you can get it,” Ferreira said.

3. Make it easy for customers to buy

Ferreira said far too many New Zealand SMEs make it hard for customers to buy because they haven’t sat down and evaluated the customer experience journey.

“Analyse every step on the journey your customer takes with you – from your website to your Facebook to your accounting set-up so that you can identify and eliminate the obstacles. You will need every competitive advantage you can get.

“It’s not uncommon to find processes that make it easy for the business but harder for the customer. Think first about making it easier for the customer,” Ferreira said.