Bad business: Kiwi SMEs not planning ahead
New Zealand small business owners need to have another look at how they're investing in their own businesses, with one industry expert saying current exit strategies are just plain bad business.
Managing director finance at OneHQ, Harry Ferreira, who was the former general manager for small business at BNZ, says New Zealand SME owners tend not to invest in their own businesses, or they invest too late. Ferreira says this is not only bad for the business owner, it's not helping the economy.
"SME owners' lack of energy around planning their exit strategy is just plain bad business. Small businesses are atrophying over time because owners hold onto them past their peak," he says.
"Most of a business owner life is spent thinking about sales. Unfortunately, they only start thinking about retirement when they have to, rather than having a well-planned process," explains Ferreira.
"The result is, and we're seeing it more and more, that when they do eventually retire all they have to show for it is the family home," he says.
With SMEs making up 28% of GDP, making the small business sector more important to the economy than agriculture, which contributes 9%, Ferreira says that business owners are not the only ones that will be negatively impacted by the lack of planning and investment.
"SMEs make up around a third of New Zealand's economy, therefore their decisions are important for us as a country. They are the lifeblood of our economy," Ferreira says.
"The failure to realise the value of their businesses will consequently result in less money and loss of jobs, intellectual property and opportunities," he says.
"It puts a burden on our communities, which will ultimately be felt through the whole country."
Ferreira says baby boomers, who make up a large portion of owners and chief executives, need to be considering a change in their retirement plan and start looking at letting go of their businesses before the business begins to decline.
"An exit plan is important because you don;t want the business to die altogether," he says.
"Instead you want to pass it onto others, perhaps a younger manager with fresh ideas who can reinvigorate the business and keep it growing and contributing to our local communities and economy," Ferreira explains.
Ferreira says for SME owners to leverage their business potential and get the most out of their retirement, seeking external help could be advantageous.
"By getting the right type of people with the right advice and experience around you, you can realise optimum value for your business," he says.
"Third parties can help you identify other investments. For example, who to sell to and who you want on the management team, all of which will enhance your business in the future," explains Ferreira.
"It is crucial that SME owners are taking the right steps to ensure the financial stability of not only themselves but for New Zealand's economy as well.
"It's really important for business owners to plan and have a well thought out succession plan, not a couple of years before their exit, but five or ten years prior," he says.
"At OneHQ, we have worked out an exit framework, what that looks like and how we will achieve that," Ferreira says.
"By implementing a well thought out exit plan to the overall business strategy, the roads start to align towards that target."