Practical tips for business leaders

Control the bottom line: Key to the long-term success of any business is profitability. While it’s important to ensure that gross margin metrics are being maintained, the bottom-line is where the rubber really meets the road in terms of returns to shareholders and return on investment. Where the business landscape is changing rapidly, businesses leaders should be prepared to review their structure and adjust expenditure to maintain overall profitability.

Cash is king: While profitability is key to long-term success, in the short-term, cash flow management is at the forefront of a business's ability to navigate tough waters.  

Top cash flow management tips:

• When budgeting, ensure you’re forecasting your cash flow requirements and think about the “what-ifs” to ensure you understand your potential financial position under different scenarios, and plan what you would do to mitigate risk or maximise opportunities in each.
• Keep a close eye on your debtors to ensure that payments are made as expected. It’s also important to regularly review your terms of trade to ensure they're fit for the current environment.
• Build a strong relationship with your bank and reach out ahead of time when it looks like a cashflow crunch is on the horizon.
• Ensure you are aware of all upcoming payments, including tax. There are several options available to finance or spread tax payments - speak to your accountant or tax adviser to understand more.
• Tax is a significant cash outflow for most businesses, so when cash flow is tight this is a key area to focus on. Depending on when your last tax return was filed, you may be paying provisional tax based on previous years’ profits and this year's profit may not support that. Your trusted adviser can help you to work out a solution here.
• Reach out to your advisers and key stakeholders - your bank, suppliers, and customers. Don't plan in isolation and make sure you are communicating and actively managing the situation.

Manage your stock. Many businesses end up with dead stock on balance sheets. They don't want to sell it at a reduced price as it will hurt their margin and they could make a loss - but how long should you hold on to stock for without cash coming in? What is it costing you in storage and insurance to hold the stock? It may be better to take the hit in the short term to utilise these funds more effectively.

Look at your financials holistically. You should be as familiar with your overall financial picture as you are with your products and services, market, and industry. Review every metric, from net profit and gross margin to expenses, cash flow, and sales. Look at how these combine to build an accurate picture of how your business is performing. 

Negotiate more favourable terms with creditors but ensure that you have a clear path to timely repayment. Avoid simply postponing issues without a concrete plan to address them.

Keep a close eye on debtors to collect cash within reasonable timeframes. Debtors may delay payments to manage their own cost pressures. Look at your terms of trade and, if feasible, consider providing incentives for prompt payment.

Look for opportunites. Changes in the Official Cash Rate (OCR) provide an opportunity to take advantage of changing conditions. This might mean reducing your current interest rates, seeing improved cash flow and considering how best to utilise those funds in your business, or simply making sure you’re monitoring how those changes will impact you over time. 

Maintain communication with your bank. This will help ensure you have a trade finance facility that works for your business. You will have a stronger relationship with your bank if you can showcase detailed forecasts and up-to-date cash flow reports. Be up front if you are not going to be able to meet your agreements - giving advance notice can make all the difference. Similarly, make sure arrangements are in place with Inland Revenue if you anticipate getting behind in any payments.

Don’t go it alone. Seek advice from people you trust. Consider establishing an advisory board of experts to provide advice on a regular basis. 

Refresh your business strategy. The business landscape has changed significantly in recent years, but your strategy might not have. Sit down and examine your business strategy to make sure it still aligns with the reality of today’s operating conditions. Things to consider include what your overall business vision is and how you’ll get there, what your business strengths and weaknesses are, and any potential opportunities or threats. 

Stress-test your business plan and financials against various scenarios - including changing technology, environmental concerns, employee preferences, industry trends and consumer habits, among other things. 

Establish clear decision points aligned with key performance indicators (KPIs). These decision points should be integrated into your budget and cash flow plans. The budget should serve as a guide for planning expenditures at the most appropriate times, rather than restricting spending altogether. It's crucial that the business and cash flow plans align with the overall business plan. If the financials don't add up, it's time to revisit and adjust the plan.

Regularly measure actual performance against forecasts. Understand what has changed and why there are discrepancies between expected and actual results - you can then use this improved knowledge to re-forecast and make strategic adjustments.

Don't shy away from making tough decisions early on. Procrastination can exacerbate problems, so it's better to address issues head-on before they escalate.

Demonstrate good leadership and communication. In tough economic times, strong and visible leadership should exhibit strategy, vision and motivation, communicated across the business and to stakeholders. 

Seek out opportunities. Tough economic times present risks but they also present opportunities. This could be in the form of underpriced assets, opportunities to gain market share or gain an advantage on competitors, or taking the time to optimise your processes, products and processes. 

Reach out. Look for support and advice beyond your business, whether that's through a relevant business association, your local Chamber of Commerce, industry association, networking group or Regional Business Partner. There are a range of groups and resources out there that can provide support and advice.

Think strategically. While understanding the current economic climate is the first step, it's essential that businesses form or refresh their strategic plan to ensure they are moving in the right direction. Consider what success looks like in the long-term and how you are going to get there - ensure that decisions are strategic, rather than reactive - and that will move you in the right direction toward your goal.

Consider your governance model. It's important that business have people with the right skill sets in place to form strategy, make decisions, and provide advice. Asking independent directors to join your board or alternatively, forming an advisory board are excellent methods to add knowledge and skills to your business governance framework. 

Assess the impact of inflation on your business at a holistic level. Businesses can be hit two-fold in challenging economic conditions, with sales generally being impacted by consumers facing increased costs of living along with the increased cost of doing businesses. As OCR levels change, it's important that business leaders understand the environment they are operating in - and adapt accordingly.

Manage risks. When dealing with uncertainty, including political and economic, it’s important to focus on what you can control. Ensure that you understand the risks your business faces, along with their likelihood and potential impact. From there you can take steps to mitigate these risks – or minimise their impact. View more ways to manage risk in our BDO Risk Landscape Report here.

Get your compliance right first time. Keep on top of all the reporting and governance issues, stay up to date with PAYE and GST obligations, and do not let important dates slip by. Be proactive in dealing with Inland Revenue debt and put arrangements in place if you are falling behind on payments.

Risk management is increasingly important for businesses as geopolitical, environmental, and economic events continue to impact the modern business landscape. From adverse weather events to the COVID-19 pandemic and the risks presented by artificial intelligence, New Zealand businesses are faced with an extremely complex and ever-evolving risk environment. Now more than ever it's essential for business leaders to understand their own risk profile and the steps they can take to reduce their exposure to risks and minimise the impact of those risks if and when they do occur. 

The latest BDO Global Risk Landscape Report explores the interconnected and compounding nature of risks, alongside challenges posed by AI, digital transformation, fraud, human capital, and climate change. Our report covers the three areas C-suite executives say their companies are least prepared for, including:  

• cyber attacks and computer crime,  
• economic slowdown or a slow recovery, and  
• environmental risk.  

View the report insights and tips

Call on support. Business leaders have a lot on their plates. When times are tough, it’s essential to have the right people around you to lean on for support. Your support team should include not just those immediately involved in your business, but your wider network of peers and trusted advisers.

Consider outsourcing. At a time where many businesses are considering whether their current structure is fit-for-purpose, outsourcing of certain business functions may be considered a cost-effective tool to manage workload. External HR, IT, legal support or an out-sourced finance function can be used to tap into the right skill sets at the right time, potentially reducing employee headcount and minimising business risk. Learn more about BDO's Virtual CFO solution here.

Be flexible. Many business leaders grapple with the challenge of balancing business and family life. Understand your non-negotiables - what are the most important tasks, events, and challenges? Focus on those and fit the less-important in around them. Flexibility is key in hitting the right balance.

Utilise technology. The right technology tools and systems can help you to streamline processes and improve reporting accuracy. Make sure your tech stack is fit for purpose and you're getting efficiencies from your tools. 

Think about your business’ succession planning. Look at who is up and coming and consider who you want to be your number two.

Ensure people work within their capacity. An overstretched team is unlikely to perform at its best, which can further expose you to risks. Make sure you and your people aren’t exceeding capacity. 

Look at your efficiencies. While it's important your team is not stretched beyond their limits, it's also key to ensure they are using their time efficiently and in the right areas to add value for your business.

Monitor staffing levels and rosters. The outlook and workload for many hospitality, retail, and tourism businesses has changed in recent years. Make sure your staffing levels and rostering system is fit for purpose for the current market dynamics. As part of this, you could consider introducing more flexibility into rostered hours to add more flexibility to your workforce and fill shifts.

Embrace technology and learn how to use it to your advantage. This might mean using a tool or program to assist your accountant with transaction work or help you to stay up to date with available reports.

Don’t get complacent when it comes to cyber security. Cyber crime is a leading risk factor for New Zealand businesses and it’s important to remain vigilant about the cyber risks that could impact your business. Conduct regular reviews and seek external assurance that your systems and procedures are fit for purpose.

Optimise your systems. During periods where there is less work, it can be a good time to look at your systems and technology and consider how these can be optimised. Consider whether they are the right systems to drive you forward – or are they holding you back?

AI is coming at us. Now is the time to consider its impacts on your business. When harnessed appropriately, AI may be a significant opportunity for growth, or driver of efficiency for your business moving forward. Now is the time to start the conversation with external specialists and internal team members to better understand how you can use AI in the future.