Surviving the Economic Downturn
It comes as no surprise that since New Zealand entered an official recession in December 2023, individuals and businesses have been forced to take steps to cut costs to survive the impact. Having not experienced a recession since March 2008, many New Zealanders might not remember the 18-month downturn that finally came to an end in June 2009. However, one key lesson is that recessions eventually end, and businesses need to adapt to market conditions to survive. So, what strategies can business owners use to ride this wave?
The most obvious but simplistic way to cut costs is to create a budget and stick to it. Although easier said than done, creating a monthly budget and reconciling at month end against actual costs is a good way to create discipline with money coming in and going out. Key management personnel must closely monitor and control all types of expenditures, including minor ones like coffee deliveries and office supplies, as these can accumulate and impact overall costs. Maintaining a steady cash flow is equally important, therefore, it's vital to ensure debtor payments are consistently collected and to actively chase late payments.
Additional strategies include enhancing customer relationships and prioritising retention while streamlining operations and leveraging technology to create more efficient practices to decrease costs and target a wider audience. Maintaining financial flexibility, involving employees in cost-saving measures, and utilising targeted marketing and sales incentives are also crucial. Balancing cash inflows and outflows, cost reduction and income maintenance, alongside business development, can help achieve financial stability and long-term success in an uncertain economic climate.
The economic downturn has not only affected business owners but also influenced Government spending, creating ripple effects. The Government has cut spending on consultants, impacting large accounting and professional firms, leading to redundancies, and fewer future employment opportunities, including intern and graduate spaces.
A recession can affect all sectors, from Government spending to large firms' employment and small businesses' cash flows. To ensure resilience, businesses need to adapt, innovate, and collaborate, leveraging all available resources and support systems. By doing so, you can weather the storm and emerge stronger on the other side. All going well, as you emerge out the other side, the challenges can become opportunities for growth and innovation.
