10 Creating Synergy
How the Synergy Flooring husband and wife team have leveraged their synergy as a couple
12 Magnetic Appeal
Resilience, innovation and sheer Kiwi determination is FlexiDRILL’s recipe for success
19 Who Would be an Employer? Weighing up the pros and cons in a climate of increased regulation
I SSUE 13
Passion for the Bean ALTURA’S EVOLUTIONARY JOURNEY WITH COFFEE
Business is a curve.
Where are you on it?
Today it isn’t enough to know what you do, and simply do it well. You also need an eye on your future, and a knowledge of what that might mean. At Hayes Knight, we don’t just work the numbers, we interpret them. The result is a more empowered, knowledgeable client who knows what tomorrow might bring – curve balls and all. Visit hayesknight.co.nz
CONTENTS
Flexibility, Innovation and Resilience This past year has brought a lot of changes for home and business owners; from the increased regulatory pressure employers face, discussed on page 19, to the rental loss ring-fencing mentioned on page 7, there are plenty of challenges to face and overcome. In this issue of Beyond the Numbers, our clients tell their own stories of ‘rolling with changes’…whether change is as a result of internal or external triggers, their success has depended on being flexible, innovative and resilient. Altura has an inspiring story about how they have put their passion for coffee at the heart of their business and accepted that evolution is part of their journey for all aspects of their business – from evolving consumer demands and trends, through to the way their beans are sourced. Keeping ‘innovation’ top of mind has been key to their special story.
FlexiDRILL’s mantra has largely been around innovation and this has really paid off over time. Synergy Flooring has ensured their business foundations are solid with the best structuring and planning possible to make sure their strategies will help them move forward soundly. We hope these client stories, together with our round up of tax information and other useful updates, will inform and inspire you to take charge and control what you can within your business. Being proactive is a great way to ensure you are firmly behind the steering wheel and ready to handle whatever speed bumps come your way! Happy reading!
“Being proactive is a great way to ensure you are firmly behind the steering wheel...”
Andie Johnson Editor, Beyond the Numbers
features
04
PASSION FOR THE BEAN Altura Coffee shares their journey so far
news, views & tools for success
07
TAX: RESIDENTIAL RENTAL LOSS RING-FENCING Updates on legislation and general tax tips
14 DARK CLOUDS ON THE HORIZON Protecting your business in uncertain times
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16 TIME TO HANG
UP THE BOOTS Considerations when planning succession
The information and advice contained in Beyond the Numbers cannot cover every financial situation or requirement. If you have further questions, we encourage you to contact a Hayes Knight business or tax advisor for advice tailored to your specific circumstances. Hayes Knight Limited is an independent member of Morison KSi.
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SYNERGY BY NAME AND BY NATURE How Synergy Flooring has leveraged their teamwork
MAGNETIC APPEAL Discover FlexiDRILL’s recipe for success
17 HAYES KNIGHT NEWS Updating you on recent news
Cover photo: Chris Loufte
18 SPOTLIGHT ON
19 RADAR
Meet Nicola Pollard, one of our Business Services Managers
Who would be an employer?
Beyond the Numbers is published by Hayes Knight editor.
Andie Johnson Lewis Hurst // hurstmedia.nz printing. Cube design.
3
BUSINESS STRATEGY ALTURA COFFEE
Passion for the bean WORDS: Adam Fricker IMAGES: Chris Loufte
Chris White, Altura's Director
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ALTURA COFFEE BUSINESS STRATEGY
It’s easy to see how someone could get hooked on the business of coffee... once you understand the journey from green bean to cup, it leaves you hankering to learn more. At least, that’s how it happened for Chris White, founder of the gold-standard coffee wholesaler Altura Coffee Company Limited. His father wouldn’t let him leave school until he had a job so he applied for one in the newspaper that read ‘No experience required, drivers’ licence essential.’ The year was 1980 and the job was coffee roaster at a then-fledgling Robert Harris, where Chris learned the craft from the ground up. In the process, he developed an enduring passion for coffee. “You become fascinated with the product once you understand the process of bean to cup,” says Chris. “I’ve been in the business since the ‘80s and I’m still learning.” By the time Robert Harris was sold to Cerebos Greggs a decade later, it had blossomed into a chain of cafes and products. Chris’s knowledge base had grown with the company – he was production manager by then – so rather than manage a range of ‘dry goods’ (herbs, spices, corn chips and coffee) for the new corporate owner, he and a business partner struck out on their own. “I took redundancy and started again from scratch, this time in partnership with a guy who was a design engineer. He built our first coffee roaster. In 1991, we opened up a little roasting factory in Glenfield, Auckland, hired a sales rep and went from there.” Skip forward 10 years and Altura had grown into an established coffee roasting and wholesaling business, but unlike many of its competitors, had no shops or cafes for potential buyers to sample their coffee in. They moved to their current address in Albany and built a 107-seat cafe with a roastery taking pride of place in the centre – a coffee destination that also sold great food, but was ultimately all about the coffee. Altura’s journey continued from there and now supplies coffee and related equipment to cafes around the country. Part of their success rests on the journey they took early on, back to the source – the coffee bean farmers.
“There weren’t many green bean brokers in New Zealand then, and as we grew we decided we wanted to source our own green coffee beans, build relationships with farmers and source the actual beans we wanted,” says Chris. “The brokers are all drawing off the same green bean pile, so they’re all starting with the same raw ingredient. We wanted something a bit different. So we struck up relationships direct with farmers.” Every batch of Altura’s green beans can be traced back to single farms in Brazil, Colombia, Guatemala and Papua New
“If you stop enjoying what you do and there’s nothing else to learn, it’s time to get out, but I’m always learning more…” Guinea. The company says its longterm relationships with its coffee bean farmers ensures on-going support for their communities and a consistent supply of the best green coffee beans at fair prices. “The growers used to basically strip the crop and sell it as a commodity,” says Chris. “Now the farmers realise you can actually get different tasting coffee from different parts of your farm, and from different farming methods, which is why we’re now getting these micro-lots [of beans] coming through. The way they grade and process the coffee
has also become a lot more elaborate.” “We went through that Fair Trade coffee phase” Chris continues. “But realistically the cost of getting Fair Trade certification was too high for many farmers, so this is why we decided to go direct to farmers. We can show pictures and tell the story of the farming family, the chain from tree to cup. We can prove sustainability and traceability.” Most of the farms Altura deals with have scale to provide reliable supply. With the growth in boutique varieties, they are now also buying smaller quantities of interesting varieties from small farms and offering short-run, special blends to customers. “It’s a bit like wine in that regard. In the cafe, we run blend of the month to give patrons the chance to try these micro-lot coffees from around the world.” The international aspect of the coffee trade, and the relationships with farmers around the world, have kept the passion for coffee alive for Chris, but it also keeps him learning. This knowledge then feeds back into his business. “If you stop enjoying what you do and there’s nothing else to learn, it’s time to get out, but I’m always learning more. I am also involved with World Coffee Events, which includes barista and roaster championships as well as judge certification. Seeing the best baristas competing is still mind blowing. Being able to bring all that experience back home is great,” explains Chris enthusiastically. One challenge Altura faces is the tightening of coffee supply, driven by more demand from emerging economies, 5
BUSINESS STRATEGY ALTURA COFFEE
particularly in Asia, and by dwindling supply as coffee bean farmers face the same challenges of succession that farmers around the world face. The sons and daughters of farmers are often drawn to life and work in the big cities. On the domestic front, supplying cafes presents another challenge. The hospitality business has one of the highest failure rates
every available protection was taken to ensure the machine would come back to them if the cafe went broke.” Strict terms of trade have helped moderate the risk, says Chris. “We’re seeing a lot of growth in cafes”, he explains. “Every new building seems to have one. It’s a popular start-up sector, with people giving it a try. They invest a lot of money in gear.” He
“It’s a bit like wine in that regard. In the cafe we run blend of the month to give patrons the chance to try these micro-lot coffees from around the world.” of any sector. Hayes Knight director, Tristan Dean, has worked with Altura for about 14 years on a range of business issues, risk being a major one. “They are in a competitive market,” says Tristan, “dealing with a lot of small cafe operators, which comes with some specific risks – particularly around getting paid. They provide expensive equipment (coffee machines) into cafes as part of the supply deal and we had to help with making sure 6
continues, “To manage our risk, we say to the cafes, ‘you’re getting paid for the coffee as soon as the customer drinks it’. So we ensure that our customers adhere to the signed terms of trade, which lands up being beneficial to both parties. We’ve had a few cases of cafes just closing doors and we don’t want to be left with a huge bad debt.” Chris says Hayes Knight has always communicated well with what‘s going on in the marketplace, “what we should be
cautious of, what we should look out for, and potentially where we could go. It’s invaluable when you have a company you work with that you totally trust. Those are few and far between and getting worse.” Having seen the Robert Harris model with its many cafes, and understanding that supplying the big retail chains would fundamentally alter his business model, Chris is happy to stick to the one cafe and keep doing what he fell in love with in the first place, sourcing great beans and roasting them for the local cafe trade. Altura keeps evolving though and Chris keeps learning. “We like keeping up with local and overseas trends. Growth in the capsule market is a big focus. We are now packaging our customers’ favorite blends into capsules. We are saying, “if you get a really good coffee why restrict it to bags? Let’s package capsules too.” Chris further comments, “Domestic equipment is also coming to the fore. People are making more coffee at home. There’s always something different coming through.” And this evolutionary aspect is exactly what will continue to fuel Chris and Altura – that and a piccolo, Chris’s personal favourite!
TAX
Residential Rental Loss Ring-Fencing Not only have residential investors been hit with the extended 5-year bright-line test, the new loss ringfencing rules will mean many residential rental property owners may struggle to cashflow the costs of owning their rental property. Legislation was passed in mid-2019 which ring-fences residential rental losses from the beginning of the 2020 income year. A staged implementation had been suggested but did not make the final cut. Instead, the last opportunity for residential rental property investors to offset their rental losses with other income was the end of the 31 March 2019 tax year. The loss ring-fencing rules do not apply to mixed-use properties, such as the family bach, they do however apply to overseas residential rental properties as well as New Zealand residential rental properties.
For those with a residential portfolio, rental losses of one property can be offset against rental profits from other portfolio properties, or against taxable gains from the sale of properties. Given the onslaught of new rules and regulations being imposed on residential landlords, from the new Healthy Home standards, to limiting rental increases, the increased 90-day notice period and allowing tenants to make changes to the property, and now the removal of loss offsets, the attraction of being a landlord could be diminishing somewhat. Whether it be exiting the market or increasing rents, the changes do not bode well for solving the current shortage of residential rental properties. If you would like to discuss the impact of the new loss ring-fencing rule, please contact your usual Hayes Knight advisor or the Hayes Knight Tax Team. 7
TAX
Was your tax paym received on time? Technology has seen more and more of us making our tax payments electronically, which Inland Revenue actively encourages. It is therefore timely to review when Inland Revenue accepts payments as having been received on time.
NEW ZEALAND ELECTRONIC PAYMENT will be received on time
when it has been electronically paid or direct credited into an Inland Revenue account either on or before the due date. Make sure you know your bank’s processing schedule.
DIRECT DEBIT can be set up in myIR and will be received on time when it has been credited into an Inland Revenue account on or before the due date.
DEBIT/CREDIT CARDS PAYMENT will be received on time when it has been paid or direct credited into an Inland Revenue account on or before the due date.
CASH AND EFTPOS PAYMENTS can be made at Westpac branches (not at Inland Revenue offices) and are received on time if they are made on or before the due date. (Note: Westpac is not authorised to accept returns, only payments). Taxpayers with a Westpac bank account can also make payments via Westpac ATMs, provided they have a payment slip with a bar code that has been issued by Inland Revenue.
PHYSICAL PAYMENTS BY CHEQUE will be accepted as being
received on time if delivered to an Inland Revenue office on or before the close of business on the due date. Drop boxes are inside Inland Revenue office reception areas and are available during reception opening hours.
CHEQUES POSTED to an Inland
Revenue postal address, whether posted from within New Zealand or from overseas, must be received on or before the due date.
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POST-DATED CHEQUES. Inland
Revenue will make its best effort not to bank post-dated cheques until the specified date. A cheque that is postdated after the due date, even though it may have been received on or before the due date, will be treated as late.
TAX POOLING when a payment is
transferred from Inland Revenue’s tax pooling account into a taxpayer’s tax account it is treated as received. The effective date of the transfer can be no earlier than the date the tax pool deposit was first received by Inland Revenue.
OVERSEAS ELECTRONIC PAYMENT will be received on time
when it has been electronically paid or direct credited into an Inland Revenue account either on or before the New Zealand due date.
TAX
ent SHOULD YOU USE TAX POOLING? WEEKENDS AND PUBLIC HOLIDAYS • If a due date falls on a weekend or
a public holiday, then an electronic payment will be on time when it is credited into an Inland Revenue account on or before the next working day. • If a due date falls on a weekend or a public holiday (including a provincial anniversary day), a payment will be on time if it is received by an Inland Revenue branch office, at a Westpac branch or at an Inland Revenue postal address on the next working day (this only applies to taxpayers who usually deliver payments to a Westpac branch or Inland Revenue drop box in the province that is celebrating its anniversary day and so are unable to access those sites on that day). If you have any questions on when a tax payment will be received on time by Inland Revenue, contact your usual Hayes Knight advisor.
Yes, we certainly think so. It is Inland Revenue approved and has been around since 2003. In a nutshell, instead of taxpayers paying their provisional tax payment to the Inland Revenue, they deposit their provisional tax payment with a tax pooling intermediary who then deposits that payment into a tax pooling account with Inland Revenue. When the taxpayer knows exactly how much they need for provisional tax for the year, they have the required amount transferred out of the tax pool into their own account with Inland Revenue. If there is a surplus, the taxpayer can either ‘sell’ it to another taxpayer (and generally receive ‘interest’ greater than Inland Revenue’s credit interest rate), transfer it to another tax type, (eg, GST) or leave it in the tax pool to apply to a future payment.
Another advantage of depositing your provisional tax with a tax intermediary is the ability to have it refunded at any time; unlike with Inland Revenue who often won’t refund any surplus until your tax return has been filed, or at least an interim imputation credit account is filed. Aside from the benefits that come from depositing into a tax pooling account, for those taxpayers who may find they have short paid their provisional tax they can ‘purchase’ the shortfall from the tax pool for less cost than the Inland Revenue’s debit interest rate and eliminate or reduce any Inland Revenue interest and late payment penalties. The use of tax pooling really is a no-brainer. Contact your Hayes Knight advisor to discuss how you can get tax pooling working for you.
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Synergy Flooring owners, Alex Ward and James Alexander
Synergy by name and by nature WORDS: Adam Fricker IMAGES: Chris Loufte
Synergy (noun) - “The interaction or cooperation of two or more organisations, substances, or other agents to produce a combined effect greater than the sum of their separate effects.�
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SYNERGY FLOORING BUSINESS STRATEGY
James Alexander and Alex Ward are clear on one thing; a foundation of their success in business is their complementary skills. Since starting Synergy Flooring nearly two years ago, this husband and wife team have leveraged their own synergy as a couple, combining James’s industry experience and sales ability with Alex’s financial background as a CA to massive effect. They’ve taken a small flooring installation business and injected it with the enthusiasm and fire of a young couple with big plans. As with all aspects of their approach to business, they were clear about which part of the flooring market they would target – commercial. This immediately lends scale to the jobs they take on, an advantage over most domestic jobs. “Domestic is personal and owners tend to have their own design in mind. We do some domestic work and enjoy what we do, but commercial we enjoy for the scale and complexity of the jobs. The jobs have more parts, are more intricate, have a faster turn-around and we are able to input a lot more of our design and technical advice,” explains James.
“The success James and Alex have enjoyed in just two years is due to not just their own synergy as a partnership, and their ability to form successful partnerships with clients, but also their laser focus.” On big commercial jobs, sub-contractors like ourselves can be quite exposed if the main contractor falls over, so Synergy pick their jobs carefully, says James. “We do watch who we do work for. Our business has been built on discretionary work and it’s been built on relationships, so a lot of the work we do is for repeat clients. That’s a point of difference for us. We put a lot of energy into building those relationships and earning their trust.” That approach has led to repeat contracts within the education sector. Synergy rate themselves in the top three for education fit-outs now and, as Alex says, while the work is pressured, (being scheduled for the twoweek holiday breaks), schools are good payers. The company has also enjoyed strong growth in the construction sector and handled all the flooring at the huge B:Hive, a flexible office space within the Smales Farm complex on Auckland’s North Shore. “The client wanted us to take all flooring aspects under
our umbrella – one contract for all floor coverings,” says James. “At 7,000 sqm of carpet and the additional 3,000 sqm of polished concrete – this has been our largest project yet. We also did all the atrium stairwells, the orange rubber tiles, the carpet was a custom design which we worked with an architect in Australia to come up with and had manufactured in America.” Synergy are being noticed for the quality of their work and, crucially, service levels, with major clients like the Catholic Diocese of Auckland, Watershed Limited and Construction By Design (CBD) all giving them repeat business. Martin Gunman, director of CBD, hits on an aspect that gives Synergy an advantage: “They have a highly skilled installation team who work in well on site and their project managers are hands-on to ensure quality assurance.” Alex says they made a deliberate decision to combine the roles of sales and project management, so clients get the best result possible. “From start to finish, clients have one point of contact, instead of one person measuring the job and another managing the job. That makes for a busy role for our guys, but we see that as being quite an advantage in terms of quality of service,” says Alex. They also make every effort to ensure their installers – all independent contractors – are heavily invested in delivering Synergy’s promise of quality. “The installers are a very big part of what we do,” says James. “They’re contractors but we look after them well, such as providing prompt payment and booking their development courses. We treat the relationship like a big family, going fishing, golfing and activities every quarter. They’re a huge part of the story.” The success James and Alex have enjoyed in just two years is due to not just their own synergy as a partnership, and their ability to form successful partnerships with clients, but also their laser focus. Hayes Knight director, Brendon Cutler, has worked with Synergy for two years now and says from day one the couple were clear about their goals, for business and for building wealth. “I found James and Alex very engaging, open to advice and keen to improve. Alex ensures quality monthly financial accounts are produced and has a finance background and James has industry experience and a very strong sales focus, so they complement each other well,” comments Brendon. Talking to James and Alex, you get the feeling that while pleased to have already knocked off some of their major goals, they are only just getting started. As Alex says, “At a very early stage of our business and our life, with the help of Brendon at Hayes Knight, we feel we’ve set things up really well, establishing trusts and structuring our debt and business correctly.”
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BUSINESS STRATEGY VILLA MARIA
Magnetic appeal WORDS: Rachel Macdonald IMAGES: Chris Loufte
Resilience, innovation and sheer Kiwi determination – that pretty much sums up FlexiDRILL’s evolution from business start-up drilling contractor to international market leader in magnetic and mechanical induced vibration drilling equipment for the mineral extraction industry. FlexiDRILL's Managing Director, Bruce Munro
Bruce Munro is a man of business. He sits on a number of boards of directors and manages a variety of investments across a range of different industries. Spotting an opportunity in the horizontal drilling sector more than 20 years ago, he founded FlexiDRILL as an addition to that portfolio. Since then, his mantra has been: If at first you don’t succeed, go back to the drawing board; innovate, innovate, innovate; then try again. The inventive drive behind each new FlexiDRILL product, as a result of this philosophy, is Bruce’s business partner and operations manager, as well as the research and development mastermind, Greg West. “I have placed enormous faith in Greg over the years and have never been disappointed,” says Bruce. “He’s not an engineer, so he has never known what can’t 12
be done – he just keeps challenging his innovative engineering team to find novel solutions. He’s put a huge amount of sweat
“If at first you don’t succeed, go back to the drawing board; innovate, innovate, innovate.” equity into the company and has never stopped believing we can find solutions to every challenge.” In the beginning, it was actually the country’s telecommunication companies that attracted Bruce’s attention, as they
looked to roll out their new underground fibre networks. “Trouble was, the telco’s rollout fell over. Instead of the big national projects, the work narrowed down to small household connections contracts that weren’t suited to our drills,” says Bruce. “So we changed direction, looking to design a drill that could do this work efficiently. Greg came up with the idea of making a drill as an attachment to an excavator and this worked so well we decided to change direction and become an equipment supplier.” Greg packed a demonstration bag and put on his travelling shoes. He took the new attachment drill to Japan, Australia, USA and Europe where drilling work commonly has to take place in tight places. Some 70 drills were sold across these markets. Then followed talks with John Deere, which would
FLEXIDRILL BUSINESS STRATEGY
have resulted in a huge deal, had the final signing not been derailed by 9/11. So once again FlexiDRILL returned to innovation, believing that the next biggest problem to solve was drilling, not only through rock but doing so at considerably increased rates of production. Greg and his team’s first creation was a four-tonne head like an oscillating hammer, that sat on the drill rig. The idea worked, but the tool was too big and there was no way to send the vibrations any distance down the drill spring. Would a magnet provide the solution? After trial and error, his team managed to repackage the technology into a down hole Magnetic Hammer which in theory would have no limit to how far it could drill, and it became rapidly apparent there might be an international market for the new product. This resulted in development and distribution agreements with Vermeer and with the biggest oil and gas exploration company in the world, Schlumberger, which allowed Greg to fine-tune his concept further. Schlumberger was even poised to take a shareholding in FlexiDRILL, but changing market forces got in the way. “That’s life, though,” says Bruce. “We
“We’re still the only player in the world to use magnets to create vibration in a drill head.”
continued to experiment, and even now, we’re still the only player in the world to use magnets to create vibration in a drill head to speed up the drilling process. Since we started, we’ve lodged 90-odd patent applications and 70 have been granted. Our biggest problem getting new patents is our own prior art.” In fact, one key to the company’s success, he says, is that it has developed its own system to control that intellectual property. “We use our own internal patent attorney (Natalee Taylor), the engineering team, and our own management flow. This forces the whole team to look at the patent process which becomes creative in its own right. It’s a holistic team approach that incorporates all the steps of the process: design, IP, funding, and governance.”
Bruce turned to Hayes Knight, which had been delivering FlexiDRILL’s financial statements and tax returns, to help brainstorm how to separate the company’s IP from its day-to-day operations to create agility in its licensing opportunities. Together, Business Advisory Director, Scott Travis and Business Advisory Senior Manager, Nicola Pollard came up with a solution that led to the company being split into two. Today, FlexiDRILL Limited owns the firm’s intellectual property portfolio; while FlexiDRILL Construction Limited has exclusive use of that intellectual property to design, develop and market its technologies. And Tax Director, Phil Barlow, took care of the licensing arrangements. Hayes Knight has also helped draft up licensing agreements and funding applications to Callaghan Innovation to ensure cashflow, as well as preparing the business overall for sale. Scott says it’s been stimulating to be involved in such robust and interesting projects for FlexiDRILL. The result has been an approach by Australian company IMDEX, which specialises in renting mining equipment and could see the huge potential in productivity gains offered by FlexiDRILL’s technology. Again a development agreement with an option to buy FlexiDRILL has since been lodged by the firm, which will see Bruce on his way to new opportunities in December, while Greg will stay with the company through the transition. “Not surprising Schlumberger has come back to us about fine-tuning the technology we showed them too, so FlexiDRILL is at long last becoming well placed to make it on its own,” says Bruce. “But under IMDEX, our products will continue to be highly disruptive in the minerals exploration industry, and the sale is the best way to see our investment over the years materialised in the market.” So, how does Bruce sum up the FlexiDRILL journey? “When you’ve got good partners and a team that’s hungry to grow, there’s an energy in business that’s unstoppable.” 13
BUSINESS RISK
Dark clouds on the horizon With a number of new government policies and initiatives taking bite, businesses are facing a new, more challenging environment. The latest ASB business confidence survey showed business confidence was at its lowest level since March 2009, with New Zealand business confidence falling to more than a 10-year low in the quarter to June 2019. Across a number of markets and industries we are seeing a downturn in business activity. The year ahead is likely to be characterised by the following:
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• Falling interest rates • An increase in business failures • Profit downgrades from large corporates
• Contraction in capital and lending available to businesses
• Tougher lending criteria by banks • Deferral of major capital projects and expansion strategies by businesses.
It will be interesting to observe how the year progresses and how these factors will impact SME’s as well as larger players.
What we know is businesses are under more pressure in the current environment. We have also seen a slowdown in the housing market over the past few years. The housing market in Auckland in particular has traditionally been a closely associated barometer to overall business confidence, aligned to home owners overall appetite for risk and debt. On top of weakened business confidence, the most constrained resource we are still seeing across multiple industries is a lack of people with the right skills. Skilled
B USINESS RISK employees are increasingly highly sought after, especially when coupled with the right soft skills. This goes against historical trends when unemployment usually rises in times of economic downturn. PROTECTING YOUR BUSINESS What can you do to protect your business in this current environment? Most business owners are busy in the day-to-day operations of running their businesses, paying bills, finding customers and dealing with staff. Now is the opportune time to seriously consider business risks. To do so requires a high level review of the key areas of your business, identifying what risks exist, and to what extent can they be mitigated. Risks will of course differ across businesses depending on the scale of the business and type of industry. In this market, business and risk reviews are a necessary part of a risk management strategy. Most risks can be identified and fall within the broad categories of
operational, business, customer and financial risks. Health and safety has also become a major risk factor with new obligations under legislation introduced in recent years. Many businesses fail to identify risks purely due to the time-consuming nature of the operational requirements of running a business. Key issues to identify in a business review for a successful and sustainable business are:
• Liquidity and solvency • Profitability • Business risks • Customer risks • Operational risks • Financial risks • Opportunities A business and risk review cuts through all the operational distractions and identifies the risks present in the business. From this process each risk can be systematically
addressed or mitigated by management in an effective and timely manner. CASH IS STILL KING Cash is still king and understanding your business cashflow is vital. We are seeing an increasing number of businesses suffering from a lack of cash in the current market. If you don’t have a full three-way cashflow forecast (P&L, Balance Sheet and Cashflow) developed for your business, now is the time to prepare one. A profit and loss budget is simply not sufficient as it will not adequately provide essential forecast information on cashflows, which can differ significantly based on unique factors such as customer and supplier terms, seasonality and capital and debt repayment requirements. Even if your business is currently operating strongly, a business and risk review will provide valuable insight into your business and provide a robust framework for ongoing management and governance of your valuable investment.
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SUCCESSION PLANNING
Time to hang up the boots? There will come a time with most business owners when the drive for running their business diminishes and is replaced by dreams of cruises around the Greek Islands. However, what many people want to know is how to make sure you get the most out of the business that you have spent years building. There are a few important things to consider if you want to maximise the sale price of your business. PROCESSES You want to make it as easy as possible for a potential purchaser to walk in and take over. Documenting processes and ensuring that there is as little knowledge ‘in your head’ as possible will give a potential purchaser confidence that the business will continue successfully after your departure. CUSTOMERS Where possible it pays to ensure that contracts are in place with key customers. The longer the contracts, the more confidence and security an incoming owner will have that the business will continue ‘running as usual’ for as long as possible. RESULTS Too many people take their eyes off the ball and it is not until the performance of the business is declining that they decide 16
to sell. People usually pay a multiple of the profit that the business makes – therefore, ensure that the business is making as much profit as possible in the years leading up to your ideal exit date. KEY PEOPLE Often the best people to continue the business may be right under your nose. Key staff members generally have extensive knowledge of the business and are often already devoted to its performance. These employees could be the perfect people to continue the business in your absence. It may even be an option to sell a portion of your business to a senior employee and reduce your involvement in the short term. QUALITY OF FINANCIAL INFORMATION Ensure you have good, accurate and timely financial information. This will
be the first place a buyer will look to determine the value of the business. Buyers don’t like surprises and their value assessment can be negatively impacted if buyers find ‘holes’ and doubts creep in as to the reliability of the financial information. While historical financial data is important, financial forecasts based on robust assumptions are also key to provide a picture of future earnings. These are just a few areas that are worth considering when contemplating selling a business. Remember the best time getting your business ready for a sale is at least 2-3 years before your anticipated sale date. If you would like more detail or to create a structured plan, please contact your Hayes Knight advisor.
H AYES KNIGHT NEWS
Update on sponsored athlete…Jacko Gill
After missing out on competing at the Commonwealth Games last year due to a health issue, Jacko is back into full training and has qualified for the World Athletics Championships in Qatar, starting on 27 September, and is currently completing his preparation for this event in Europe. Earlier this year Jacko placed third behind Tom Walsh at the Sir Graeme Douglas International Track Challenge after throwing 20.76m and placed first at the Oceania Championships in Townsville throwing 20.75m. Jacko’s sights are firmly set on reaching the automatic Olympic qualification mark of 21.1m for the 2020 Tokyo Olympics. Good luck Jacko!
Check out our new website We have recently refreshed our website – if you haven’t already, take a look around the new site. It is easier to navigate and provides all the information and updates you are familiar with. www.hayesknight.co.nz
Pink Ribbon fundraising success On 29th May Hayes Knight participated in the Breast Cancer Foundation’s Annual Pink Ribbon Breakfast Fundraising campaign. This is the third year that we have held a breakfast event and it has been the most successful yet, having raised $2,550 for this fantastic charity – all thanks to the generous support from colleagues, clients and other associates. We truly appreciate you getting behind this worthwhile cause – thank you.
Hayes Knight supports Gumboot Day The team dusted off their gumboots for our inaugural gumboot throwing competition in support of Mike King’s I Am Hope Gumboot Friday on 5 April 2019. The Gumboot Friday charity raises money for kids’ mental health by providing free and timely counselling for any New Zealand child in need. The Hayes Knight team donated to the fund which now exceeds $1.4m! 17
HAYES KNIGHT NEWS
In this
Spotlight on
feature we have a chat to Nicola Pollard, a senior
manager in the Business Services team who has been with Hayes Knight for 9 years.
Nicola Pollard BUSINESS SERVICES SENIOR MANAGER
Nicola’s experience includes providing a range of accounting, tax, compliance and advisory services across many industries. Before starting with Hayes Knight in 2010, Nicola worked for a large North Shore based accounting firm while she worked towards her CA qualification and then departed for London on an OE. Her time in London included a couple of commercial roles; working within the finance team for an investment management company and at Wembley Stadium. Through this experience, Nicola developed skills in systems and procedures which have greatly assisted her to advise Hayes Knight clients. WHAT ARE YOUR PARTICULAR AREAS OF EXPERTISE? I specialise in financial reporting requirements. There have been a lot of changes in this area over the last 5 -10 years and because it is so important that we keep on top of these changes, I have championed this for the firm. I really enjoy assisting clients in developing robust systems and procedures around their management reporting process. It gives me great satisfaction to work with a business to enable them to get to a stage where they can rely on their management accounts and also understand them. WHY IS HAVING A FRAMEWORK OF SYSTEMS AND PROCEDURES SO IMPORTANT FOR YOUR CLIENTS? If management accounts are inaccurate, the impact on a business can be significant. Decisions to close areas of the business, change focus to or away from particular products or services, to pay down debt, hire additional staff, etc. could all go horribly
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wrong if the data is inaccurate. Systems, procedures and a robust review process assist in preventing those sorts of issues. It is important to have checklists to ensure steps in the process are not missed and also to have a review by the right person to identify issues so they can be corrected as soon as possible. YOU ALSO HELP OTHER PROFESSIONAL ACCOUNTING FIRMS THROUGH KNOWLEDGE SHOP – WHAT DOES THAT INVOLVE? Knowledge Shop is a sister company of Hayes Knight and provides a Q&A service to accountants. I provide advice on matters particularly to do with financial reporting and company law to the members of this subscription-based service. It helps me to keep on top of the latest changes in these areas. I also manage the workpaper subscription service, which is a set of
excel workpapers we sell, mainly to other accounting firms. WHAT DO YOU ENJOY THE MOST ABOUT WORKING FOR HAYES KNIGHT? The firm really values social activities for the team. We have had some fabulous events over the years. Sometimes they come as a complete surprise, like the time we were told we had a strategy session for the afternoon but instead we ended up going to the movies. We had a choice of movies to watch and then we went for a drink afterwards to discuss what we had all seen. Another day we were each given $200 and told we had to spend it on ourselves and we met up afterwards so everyone could see what we had each bought with our money. Thinking outside the box in many areas is what makes Hayes Knight both a successful accounting firm and a great place to work.
O PINION
Radar By Tristan Dean, Business Advisory Director
Who would be an employer? Business owners I’ve been dealing with recently are getting increasingly frustrated by the challenges of being an employer. There is a feeling that government regulation is pressing down on them and they feel they’re being painted as privileged people taking advantage of the workers. In the last few months employers have faced another round of minimum wage increases, the introduction of the domestic violence leave legislation and for larger employers, the demise of the 90 day trial period. The reality is that many employers feel that they are reaching a tipping point. They are now actively looking at how they could reduce their reliance on employees. Some are looking at outsourcing jobs to companies offshore, while others are looking at purchasing machinery to automate repetitive tasks currently being done by low skilled employees. The final straw for one client was the domestic violence legislation. This legislation allows employees to take up to 10 days a year additional leave if they are victims of domestic violence, including both physical and psychological abuse. While hugely sympathetic to the victims of domestic violence, they were concerned about the ability for the new legislation to be abused and the impact that would have on their business. “What am I supposed to do if an employee tells me they aren’t coming in for two weeks because their partner shouted at them?” they asked. While the legislation does allow for an employer to ask for proof of the abuse, it isn’t specific about what would and wouldn’t be acceptable proof, and the client felt that just asking for proof would risk being viewed as insensitive. The same client was also dealing with performance issues with some employees but was petrified of dealing with them as they’d heard such horror stories of people getting the process wrong. In addition, until they could outsource certain roles, they were heavily reliant on a workforce that was hard to come by. If they didn’t have staff, production in the business would stop, so they felt that having any employees was better than having none. The feedback we are getting from our clients largely mirrors what is being reported by the media. Business people are nervous. They are worried about what additional burdens will be loaded on them next, they are worried about not being able to find the right people
and not being able to get rid of the wrong people, and they’re worried about putting a foot wrong and ending up in employment court. As a result of this nervousness, expansion plans are being put on hold and big decisions are being delayed. Unless projects relate specifically to diminishing reliance on labour, we are seeing many of them being delayed or abandoned. On the whole people are honest, hard working and great to work with, regardless of whether they are an employer or an employee. Unfortunately, a few people take advantage of honest employers and push things as far as they possibly can. Likewise, the occasional rogue employer takes advantage of vulnerable employees. The issue is that employers are finding it more and more difficult to deal with the bad eggs, and current legislation seems to be leaning towards favouring the employee over the employer.
“Business people are nervous. They are worried about what additional burdens will be loaded on them next.” Employers are the ones taking the risks, creating the jobs, taking responsibility for everything and carrying the stress. They should be celebrated for being the backbone of the New Zealand economy. Employers also obviously reap the rewards of business ownership, but these rewards are merited as justification for the added risk and pressure. I’d like to see the pendulum swing back towards the middle, taking a more balanced view between the employee and the employer. As it stands, the feedback from our clients is that it’s all one-way traffic. If the government continues to make things more and more challenging for employers, we will see more jobs being sent offshore and faster automation, resulting in the unemployment rate increasing… just what the government doesn’t want. 19
Beyond the numbers... To stand out and stay ahead of the competition, you need to be challenged. At Hayes Knight, we don’t just work the numbers, we interpret them. We are with you every step of the way; helping you and your business move ahead and stay ahead.
Are you up for the challenge? Contact us today Visit hayesknight.co.nz