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Beyond compliance: What are your annual financials really telling you? With the first six months of the 2024 year behind us and March 2023 year end compliance work in full swing, it’s always interesting to see common themes jumping out from clients’ financial reports. While annual compliance can be seen as a chore for many, it still provides important opportunities to discover valuable insights to keep your business safe and help it improve. What’s behind your record revenue numbers? To a large degree this is an inflation story, but we are seeing genuine growth in the mix as well. The key is maintaining and increasing the gains you’ve made. Revisit your goals for what you want your 2024 year-end financials to look like and develop or enhance your plan to get there. For example, what can you do to generate more leads and increase customer retention? From setting up a customer feedback programme to exploring where advertising your brand would be most effective, a little bit more investment in your sales and marketing efforts can make a huge difference. And, how well do you know your client base, and what are your most successful and profitable product lines? While you’re likely to have a reasonably accurate idea of where your revenue is coming from, investing in tools and software to segment your customer base can open up a whole new world of up-to-the-minute insights about what’s working well and what isn’t. You can then allocate more resource to the most successful products and services. Take the 80/20 rule for example – if 80% of your revenue comes from 20% of your customers or offerings – focus on that instead of everything else. This can also give you time and space to explore new products or services to enhance your customers’ experience. The margin squeeze: Reduced gross profit percentage A weaker New Zealand dollar, higher costs of freight and shipping in the earlier part of the 2023 financial year, and higher costs to purchase goods all contribute the squeeze. While businesses have put their prices up, contributing to the growth in revenue, in many cases it has not been by enough, or not soon enough to maintain gross profit margins to the same extent as in 2022. We typically see a lag in clients putting their prices up, often wearing cost escalation for fear of losing business and market share. Keep a regular eye on your month to month and year to date financial results, along with comparison to prior years. Once or twice a year just isn’t going to cut it in a volatile economic environment. This is where the power of periodic reporting comes in. These monthly reports act as a temperature check for your business by giving you updates about your key performance indicators which typically include: • Current ratio of liabilities to assets (working capital) • Gross and net profit margins • Interest cover • Stock turnover • Aged debtors and creditor payment times • Ratio of wages to sales It may sound onerous to set up, but it’s an invaluable exercise. Once you have reports automatically rolling over monthly, you can also streamline your annual compliance requirements, save a considerable amount of time trying to find historical information, and get regular up-to-date results that lead to improved decision-making. Overheads are creeping up What seems like death by a thousand cuts, with overheads up across the board, a little here and a little there, it absolutely makes a difference, particularly at the wages line. We’ve heard this in the media on a frequent basis and it has absolutely been playing out in clients’ results. Watch out for ‘lazy’ costs. It’s easy for excess to creep in when times are good and the cash is flowing. Consider what is necessary to core business and staff morale and retention, and focus on trimming the fat. Are you up to speed on technology developments within your industry, and continued emergence of AI? Are there tools or processes you could introduce to materially reduce overheads or improve efficiencies? This could include reducing the impact of travel on your overhead costs by using technology for meetings instead, or simply delaying capital expenditure for a certain period of time. Sometimes bigger cuts need to be made – particularly when it comes to wages, but proceed with caution and approach all decisions with a future focus. For example, if you need to reduce your headcount, will this increase again during your next growth phase? There’s always going to be costs for recruiting and training new team members, and if the labour market is tight how will this impact your ability to deliver products and services to customers? It all comes down to cashflow A cliché no doubt, but cashflow is absolutely the lifeblood of your business. There’s lots of levers you can pull to improve your position, including: Terms of trade with your customers: Can you reduce/re-negotiate payment terms, speeding up your cash conversion rate? Making customer payments easy: Set up a click through payment function within your invoices and enable payment by credit card. The easier it is to be paid, the sooner you will be paid. Focus on debtor collection: Stop putting off those tough conversations and start making your accounting software work for you – many products have automated reminders. Take the time to set this up and any other relevant functionality. It will save you time in the long run. Are you carrying too much stock? Does your stock system alert you to aged stock? And, without shooting yourself in the foot from a margin perspective, what clever ways can you clear excess stock profitably? Are you paying your creditors too soon? Make the most of payment terms available to you and consider re-negotiating with suppliers where applicable. Are you getting the best deal from your suppliers? Go to market and see what’s out there. We’ve seen some incredible cost savings for clients undertaking this activity. Consolidate your suppliers: If you’re using a multitude of suppliers, explore options where you can negotiate a better rate by spending more with fewer suppliers, resulting in cost savings overall Consider debt funding structures: You may be able convert short term bank overdrafts into term debt to spread the load during times of tight cashflow. Jump on the tax pooling bandwagon: Consider using tax pooling to smooth out or defer provisional tax payments. And above all, forecast, forecast, forecast! Failing to forecast cashflow and plan ahead can cause even the most profitable businesses to rapidly fail.

Grant Thornton recently hosted an organisational change summit in Wellington which included a robust panel discussion about organisational and cultural change. I had the pleasure of taking a deep dive into the challenges and opportunities organisations can experience in today’s market with Janelle Riki-Waaka, Vanisa Dhiru and Jo Cribb. Read on to discover the key insights that emerged from the discussion. Today, the one constant we see and experience in our personal lives and business environments is rapid and perpetual change. You may find your business or organisation needs to look seriously at an organisational shift because: • Aotearoa is experiencing significant economic challenges • your organisation is growing to a point where you need to reset the business’s priorities, vision, and purpose • parts of the business are underperforming or failing to deliver on certain priorities, resulting in lower efficiencies. The key to sustainable and future growth is a unified organisation operating within a strong people-centred and cultural context, with visible leaders leading the charge. This means leaders are transparent and consistent in their messaging, and are seen by their people throughout the change journey. For some, this may feel like a foreign concept, or you just haven’t experienced change like this before. Well, you’re not alone - there are so many people who will feel the same way. While change is so constant, it’s seldom delivered well because: • people-centred change relies on soft skills like empathy for people, emotional intelligence and leading through capturing the hearts and minds of your people. However, change initiatives often become transactional because it’s much easier to focus on the technical aspects and outputs of change, rather than look deeper at the behaviours and beliefs that may be holding us back. While human-skills are a natural leadership quality for some, it doesn’t come naturally for all people who have a leadership title. The good news is these skills can be learned, to support your understanding of the importance of walking your talk. • leadership often isn’t visible to an organisation’s people throughout the change journey - it’s easier to default to, “not enough time, too much going on”. My belief is that time management is a choice, and a leader needs to make that investment of time to be authentic and for the change to be purposeful. [Image 1] Caption: Insights captured by a live scribe at the event Bring your people along for the journey with effective communication We choose places to work in the same way we choose restaurants, houses, and holidays – places that really talk to us and give us a sense of belonging, so when change happens within a business, this can spark a sense of grief. People’s sense of purpose and belonging is lost when they’re told about change, or it’s ineffectively communicated. Constant communication is an important tool when implementing change – telling people how the process will move and shape the organisation. Lack of effective and consistent communication often leaves people feeling: • what they’ll gain is far less than what they’ll lose • the “bright future” being proposed is better than the work they’ve done before, and that the past is “bad”, and the future state is better • there is no point in giving my role 100% if my work is not valued. Techniques to support leaders and managers to communicate to their people through the change journey can be guided by three lines of sight: Hindsight for leaders of change: This involves acknowledging the past, innovating from experience and growing your organisation with your people Foresight for managers of change: For those charged with the task of overseeing the change process, it’s mission-critical to lead with transparency, make pivots with courage and be open to learning through listening to all of your stakeholders Oversight for for deliverers of change: This means having the right people in place to manage the outputs, deliver the work and implementing the change. Change happens at the speed of trust Building trust throughout your organisation during any change process is an absolute must and can be achieved through genuine engagement and inclusion. Once trust is established, people are more likely to support and champion change. This will ultimately lead to engaged and productive team members. Water the flowers and the seeds of change. These are the people who will bring about change. Know who your rocks are, these are the people who may not ever be ready to embrace change. Make sure you have a realistic plan for those people, even if that means they eventually leave your organisation. People centred change: Diversity vs a one size fits all approach Our Māori, Pacific and Asian populations are growing, and will represent a large portion of the talent hiring pool in the not-so-distant future. Our diverse cultures and backgrounds can add immense value to your business and your market. Make sure you look at change through a diverse lens. Examine the diversity within your organisation – or lack of it. Consider who you have designing change and ask, “are we representing everyone?” Will the changes we are considering cater to our growing diversity as a nation? If you don’t have diverse voices at the table designing change, you’ll end up delivering a one size fits all process for the more dominant group or point of view within your organisation; this can cause many bumps in the road, and is not likely to be sustainable, due to lack of buy-in of the narrative. Get the right people at the change design and decision-making table, give them a voice – empower everyone to contribute to the journey. So, what could all of this look like in your organisation? To many, change is simply a restructure – shuffling the deck chairs to solve perceived challenges by certain groups in a business. However, this approach can create more problems than it solves and become unnecessarily expensive – think consulting costs and lawyers’ fees. To successfully implement a people-centric, well communicated change process in your business you can bring your people along for the journey by asking them what type of organisation they want to work in, and what type of organisation they currently work in. The answers can give you a road map to a future state that’s fit for purpose for everyone. Instead of a restructure, you may just need to look at your leadership framework, behaviours, purpose or who sits around the decision-making table. Use everyone’s insights to set some goals for your business, for example, big decisions can’t be made if there isn’t cultural or gender equity in the room, or KPIs and standards to measure leaders’ behaviour against your organisation’s culture and values – do they walk the talk? Change isn’t a distinct period of time, but a constant we all live with. Embed it in your organisation as a way of working. Invest in an experienced inhouse culture and change expert so this work isn’t thrown on top of your HR team’s responsibilities. Having a dedicated resource can help you spot opportunities and track progress against your goals. Your organisation will realise the benefits from a transparent change journey when the people are bought into the journey right from the outset. That is the best place to ensure you will achieve a level of acceptance and buy-in. They are the people the organisation will depend on to deliver and implement the change and the organisation’s ability to achieve their return on this important investment.

Many businesses continue to recover from the physical effects of extreme weather events experienced throughout the year, and will be dealing with the subsequent year-end reporting challenges. And some will also be going through the process of claiming insurance for physical loss or business interruption.

Good policies are essential for every business - how effective are yours? Almost everything happening within your business - from decision making and employee behaviour, to ensuring consistency and compliance throughout your organisation – should be guided by clear and effective policies.

The more you know about your business, the better your decision-making can be. That’s why we’re always surprised at how many businesses don’t produce consistent monthly reports. Periodic reporting checks the pulse of your business and gives you monthly updates on your key performance indicators.

Service reporting is all about your non-financial performance – the data that showcases the most meaningful parts of what your entity does. The standard is designed to help everyone see the fantastic work your charity is doing, and you might be surprised at the potential benefits of non-financial reporting. This service report tells all of your stakeholders:

New Zealand company tax changes mean that unused tax losses, previously lost following more than a 49% change of business ownership, may now survive. This means that while any existing tax losses for a sale above that threshold could previously be ignored during M&A negotiations, buyers and sellers should now consider potential price impacts when such losses exist.

Does your company have a purpose, a vision, and accompanying values? As a business owner you know what your company does, but do you have a clearly stated purpose about why you do it – the values and behaviours that you and your whole team understand, embrace and live by?

Is your Not for Profit enterprise prepared for a cyberattack? If the answer is 'no', you're not alone. Our research report, Here for Good? uncovered some alarming statistics that highlighted cybersecurity as a major vulnerability in the sector

In March 2024, PCI DSS version 3.2.1 is officially retires and version 4.0 comes into full effect – and if your business accepts card payments, you need to ensure you’re ready. PCI DSS protects your customers’ information when they provide their credit/debit card details or planned payments, and you must comply with the standard.

The US is the bastion of capitalism – and yet it is committing to building a greener, more sustainable future. It has recently done something revolutionary, investing in transforming its economy for the better. Biden’s signature piece of policy, the Inflation Reduction Act of 2022, is a powerful tool for positive change. It provides $500 billion in new spending and tax breaks that will boost the green transition, encourage investment in R&D, and support its manufacturing and agricultural sectors.

In February we launched a bi-annual research initiative to track business sentiment and explore where New Zealand businesses are succeeding, and where they’re feeling pain.

A lot of online scams are pretty obvious. Your bank isn’t going to send you emails about your balance expiring soon. And you know the IRD isn’t going to send you a text to transfer your tax rebate. Unfortunately, the types of scams most likely to affect New Zealand businesses are considerably more sophisticated.

Even if your business makes millions, it won't be sustainable in the long-term unless you collect it. Your staff won't get paid, Inland Revenue will be knocking on your door, and your business will quickly fail. Business owners understand this, yet a surprising number do very little cashflow planning. Failing to forecast cashflow and plan ahead can cause even the most profitable businesses to rapidly fall into a death spiral.

Payment Card Industry Data Security Standards (PCI DSS) were established in 2004 by Visa, Mastercard, Discover, JCB International and American Express to consolidate and simplify their individual security programmes. These standards determine how retailers and service providers should store, process, and transmit transactions to protect payment card data.

Sustainability is a business imperative: Embrace it or fall behind