October 15, 2018

Confidence games

Business confidence stays in the news. The latest GDP report shows the economy growing at its normal rate, though in my experience GDP figures are 3 months behind the SME economy.

No one knows whether the loss in confidence will impact growth. Generally, expectations of slower growth are a self-fulfilling prophecy. That expectation causes a reluctance to invest which slows economic growth – one company’s investment is someone else’s revenue. It’s circular too – the expectation of slower growth causes a reluctance to invest.

Factors in this reluctance, at least from an SME point of view:

  • Uncertainty about the regulatory environment and government decisions in the future. The Government has set up over 100 working parties, which means a lot of balls are in the air.
  • New petrol taxes are taking discretionary dollars out of consumers’ pockets and adding costs to business
  • The economy has been expanding steadily for many years and it is going to come to an end because it always does. Also, one day the All Blacks will lose at Eden Park. All streaks end, and this one is overdue (not the ABs of course)
  • There is no capacity left in the economy. Finding new staff is difficult, especially since the immigration tap was turned off. There’s no shortage of demand at the moment, but there’s no one to do the work.
  • Other factors include:
    • Falling dollar
    • International uncertainties, especially the capricious Trump regime
    • A cooling property market affects consumers’ willingness to spend
    • Banks tightening up on credit

Business is not science. It’s a more-or-less educated guess, a series of calculated risks. And mood is important in calculating risk. I remember a friend describing the sentiment during the GFC: nobody was buying anything because they knew everything would be cheaper tomorrow. On the reasoning above, there’s a 60-80% chance that we’ll see a slower economy over the next 12 months (and it’s got nothing to do with not liking the Labour-NZ First coalition).

My advice is to sharpen up while the economy is still holding. That means:

  • Get on top of your debtors right now. Reduce your debtor days to hours
  • Put your prices up and hold them for as long as you can to produce a cash reserve
  • Eliminate unprofitable lines of business – sell, fire sale, close up, whatever. Just do it
  • If you think you’re going to cut, do it soon
  • Get yourself focused, get your team focused, get your suppliers focused. Focus is a casualty of good times, we relax and let standards and concentration slip
  • Get help: engage someone from outside your business as a trusted advisor who can offer guidance and uncomfortable accountability

And for your managers, invest in their strategic and professional skills, not their technical skills. It’s never been more important to have managers who can think their way through the coming challenges, who can inspire their teams to change, who can take hard decisions and who can help you navigate the rough waters ahead.

Talk to us about how we can help your managers get sharp.

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