Capitalising on a recovering economy

Officially, New Zealand has exited the recession. How can your business take advantage of the opportunity this brings?

In this article, I discuss how businesses can take advantage of a more optimistic economy, in the face of a still uncertain economic future.

In 2007, I was bewildered how New Zealand beat the rest of the world into recession, simply by talking ourselves into it. And, just as we realised our mistake, the real global recession took hold and dragged us back down into the hole. I remember talking to business owners at the time, discussing how they intended coping with the recession. They all spoke about cutting staff and costs, mostly as a preventative measure, not through necessity. Barely a single owner talked about capitalising on the opportunity that would undoubtedly arise as we emerged into another growth phase.

However, there was one example of a business owner I spoke to who had used the economic boom of 2003-2007 to stockpile assets—mostly in the form of imported stock. As his business increased profits, he continued to pay himself a modest salary and put the profits back into holding more stock than he required, utilising the strong dollar of the day. When the economy slumped, he was able start selling down his stockpile. Cash-flow flourished as he did not need to buy stock, only doing so when the dollar was favourable. Although unprofitable for the past two years, he has turned his stockpile into a cash pile. During this phase, his competitors have cut staff and marketing budget as they retrenched for their survival, or simply gone out of business altogether. In an emerging economy, he will again turn his cash pile into a growth machine for the business. He is well resourced in staff, cash and optimism to launch ahead of his competitors.

The main lesson to draw from this business owner is simple. Understand the full lifecycle of your business. This gives you the ability to plan a long term growth strategy—minimum 5 years. The farmers weren't wrong when they said “Make hay while the sun shines.” More importantly though, store it up for the winter.

For those that did not have the benefit of building assets during the boom, what can you be doing? Here are a couple of tips:

• Invest in technology and staff now. Your bargaining power is much stronger at the moment and you will get a better deal.
• Systemise everything. Your systems and procedures should be completely independent of the people that run them—ie; anyone could step in and do it.
• Share knowledge and train. In the growing economy, the shift towards technology and efficiency will be more staggering than before, as businesses become more aware of the need to outsmart competition. Staff will need to be very adept with their new tools, and now is the time for them to start learning.
• As you start growing again, now is a good time to sack yourself from the role of “self employed”, and re-employ yourself in a new role of “strategic planner”.

Finally, don’t forget the lesson of the past 2 years. When the economy starts growing, start planning for the next recession. What can you stockpile?

Peter Thomas, Nexus Data Security