Why the government must not walk away from good businesses

via Channel Magazine.

To say we are in challenging times would be an understatement.

My business life started over 40 years ago as a young pimply-faced advertising cadet at the New Zealand Herald. The year was 1979, I was 16 going on 17. Erebus had just happened. Rob Muldoon was the prime minister. Nine years later I started our business Benefitz. August 1988, as New Zealand was battling with the fall-out from the share market crash of 1987. Things were starting to bite.

In hindsight it was a crazy but good time to start out in business. It was a character building time for all. Just two years prior Michelle and I had bought our first home with the assistance of my parents. We paid $76,000 and the rate on our $40k mortgage was 24%!

In the ensuing 32 years I have been in business we have navigated some challenging periods. Those recessionary early years; the introduction of the personal computer and the internet that have both challenged and changed our business; The ups and downs of several economic cycles; the tech wreck years; the GFC years; the emergence of the smart phone, social media and online communication. We have navigated it all and grown to be 70-80 people with a consistent turnover north of $15m annually.

But this COVID-19 problem is on another level in terms of being a challenge for our business. Like nothing we have ever faced before. All these previous challenging periods happened slower and businesses had time to react and adjust to the problem.

We were ordered to shut by the government for the good of the country.

I am proud that prior to this period, despite employing hundreds of people over the years, we had made only a handful of people redundant over three decades. This is because in troubled times good businesses can alter their business models to suit the new environment and limit the damage. Businesses were never faced with having to completely close down overnight for weeks on end, before facing an immediate recession at the other end. Business people have no control over any of what we are dealing with now.

It has been disappointing to see and hear comments from what I believe are uninformed people casually saying “that good businesses will survive and not so good will fail”. With a “so what” flavour.

The purpose of this message is to respond to that thinking and clearly outline the unprecedented position businesses like ours are now in.

In the case of our business we have lost hundreds of thousands of dollars over the past 6-7 weeks. We have a good business. Nobody has been getting filthy rich from Benefitz, but we have been trading well for a long time, providing good lifestyles and livelihoods for the owners and our team. Prior to COVID-19 we have had years of positive trading and the simple equation of debtors versus creditors was well in our favour on March 26th, day one of lockdown.

But all this has changed during this COVID-19 problem period.

Along with thousands of other Kiwi businesses we are fighting for survival. Battling to protect our livelihoods and that of our people and their families. We will be drawing on all the experience we have from 30 plus years of trading to get through this. We are well equipped to succeed. But this is a massive hurdle to overcome.

So what do we do to get through this period and come out the other side?

Firstly we took stock of our current situation. We quickly got an accurate handle on what our current financial situation was just prior to lockdown. We reported that positon to our bank so they were fully in the picture. This also allowed us to work out what remuneration we could offer to our team during the lockdown period.

The government’s wages subsidy scheme has been a big help. It enabled us to propose remuneration of 80% for our entire team (owners included) for the lockdown period. I applaud the speed at which this wage subsidy was approved and made available by the government.

We then needed to set about eliminating costs from our business. Our desire from the outset has been to try and protect the livelihoods of our team. In the belief that once we were through the problem we would be well set – with our valued team in tact – to grow once again in the post-COVID19 environment. Our landlords have been good. Our key suppliers have been good. Our staff have been very understanding and flexible – we’ve now cut remuneration for all to around 60%, again supported by the wage subsidy. A combination of all these things has enabled us to reduce our overheads to approximately a third.

Now, in the level three work environment, we are focused on generating sales and a margin to cover these new level of overheads. We are just over a week into this. Over the coming weeks we are hoping that business will slowly increase so we can pay the increasing overheads and start adjusting remuneration towards more normal levels.

But we have some huge obstacles to overcome.

The drastic reduction in overheads is in a very big part on the back of having the wage subsidy of $585.80 per week for every staff member. That support at the moment only lasts to mid-June. The uncertainty beyond that is a massive problem. Particularly if the market is totally damaged as a result of the COVID-19 problem and related lockdown. Something ourselves and all other businesses had absolutely no control over.

That’s why it is absolutely important that the government doesn’t walk away from supporting businesses that have been dropped into this dilemma. Good businesses will fail if they don’t get the balance right. If support ends after the current wage subsidy on June 17th then I believe the consequences will be severe for business.

In summary, there will be those who say “you have made a decision to go into private enterprise so you should fend for yourself”. If we were talking about normal market forces they would be absolutely correct. But what we have here are not normal market forces. We have a situation where the government have been dictating what we can and can’t do (mainly can’t do)  since March 26th. It is subjective if what they have done is right or wrong. What needs to happen now is a total focus on protecting the livelihoods of people in what were good businesses before this problem. Our own business is probably indirectly responsible for providing livelihoods for 200 to 300 people. If it was left to fail in a fragile economy many lives of good people will be severely affected. Multiply our business by hundreds or thousands of other businesses throughout the country and you will appreciate the damage and the problem that will eventuate for New Zealand.

The government must not walk away from good businesses. Strong support must continue.

Aidan Bennett, QSM is the Founder & Managing Director of Benefitz and publisher of Channel Magazine.

 

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