2 GETTING SMARTER ABOUT GROWTH

Now in it’s ninth year, the ANZ Privately-Owned Business Barometer research looks

into issues and opportunities facing New Zealand’s private businesses. The

Barometer points to profitable growth, but expectations are that it could get a bit

harder. We’ve been enjoying a good run in the economy

but there’s a sense coming through in owners’

expectations that growth could be a bit of a

struggle.

Optimism is a normal state of mind for business

owners and that remains, however the 2015

Barometer survey showed the 3-year outlook

tapering off. This is where the resilience of New

Zealand business owners is a strength: most

businesses have been around for a while and

owners aren’t always in it for the money so will

ride out the troughs. But – it may also mean they

miss out on the extra financial gain that can come

with increased focus.

In a mobile and connected world, being smarter

about how we do things will be the key to

continued growth.

The Privately-Owned Business Barometer allowed

a unique view of commercial businesses ($2m+

turnover). This report looks at what they’re doing

in key areas, and poses some questions for

owners to consider when thinking about how

working smarter can help their business grow.

Graham Turley Managing Director – ANZ Commercial & Agri

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2016 WILL BE A YEAR OF FOCUS

“Where ever smart people work, doors are unlocked.”

STEVE WOZNIAK, CO-FOUNDER APPLE

Results from the ANZ Privately Owned Business Barometer suggest owners are expecting things to get a bit harder in the future – but there’s still plenty of reasons for optimism.

Smart growth looks like:

Clarity and focus around strategy and investment Proactive about identifying and mitigating risks

Smart use of technology Agile, especially when it comes to new markets and channels

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Growth is out there, but we’ll need to be a bit smarter about finding it

G E T T I N G S M A R T

5

INTO THE WIND: THE OUTLOOK FOR GROWTH

YOUR BUSINESS EXPECTATON: NEXT THREE YEARS

0%

10%

20%

30%

40%

50%

60%

70%

2008 2009 2010 2011 2012 2013 2015

Pessimistic 1-2 Optimistic 5-6

Source: ANZ Barometer, Commercial businesses annual turnover $2M+

2015 sample of 639 business owners.

Businesses have had a favourable economic breeze at their back over recent times - but it’s a bit harder playing into the wind.

Fewer business owners feel ‘very optimistic’ about next 3 years

In 2013 64%

In 2015 53%

6 OWNERS’ LIST OF ‘SKILLS WANTED’ SUGGESTS AN ENVIRONMENT WHERE GROWTH MIGHT BE A BIT OF A STRUGGLE

WE ASKED: THINKING ABOUT THE FUTURE OF YOUR BUSINESS, WHAT KEY SKILLS DO YOU SEE AS BEING MOST IMPORTANT TO STRENGTHEN YOUR BOARD?

Strategy 50%

Business sales and development

48% Industry expertise

31%

“There’s a new normal. You can make money – but it will never be easy again.”

BUSINESS ADVISER, CENTRAL NORTH ISLAND

7 BUSINESS OWNERS CAN TAKE THE KNOCKS – AND THEY’RE NOT ALWAYS IN IT FOR MONEY

To make money 61%

To be in control of my life 36%

To enjoy a chosen lifestyle 30%

To challenge myself 27%

To follow my passion 27%

To provide self-fulfilment 26%

To use skills or qualifications gained 19%

To seize a good opportunity 15% To make a difference for New Zealanders 13%

REASONS FOR BEING IN BUSINESS

Businesses established >10 years ago

80%

Family owned 55%

Say making money is an important reason for being in business (in other words 40% think there are other, better reasons).

60%

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Succeeding in 2016 will take focus

T H E F U T U R E

9 INVESTMENT PLANS SHOW OWNERS HAVE A GROWTH MINDSET

Commercial business owners are more than twice as likely to reinvest in the business than to repay debt.

Training or upskilling themselves and staff

60% Upgrading technology

55% Upgrade plant

52% More sales investment

53%

HOW ARE YOU INVESTING IN YOUR BUSINESS?

10 DEGREES OF DIFFICULTY: MOST OWNERS HAVE MULTIPLE STRATEGIES FOR GROWTH

“We have some great ideas, but we’re lacking capital and experience.” MANAGING DIRECTOR, WELLINGTON

GROWTH IS NEVER EASY

Even what seems like the simplest source of growth is not: getting more demand from existing customers involves either the pie growing or taking share from competitors.

WHERE DO YOU EXPECT GROWTH TO COME FROM?

More demand from existing

customers

68% Introduce new

products / services

50%

Expand into new regions or

countries

25% Diversify

(buy or start a new venture)

20%

EXISTING PRODUCTS

NEW PRODUCTS

EXISTING MARKETS

NEW MARKETS

FOUR QUADRANTS OF GROWTH

HARD

HARDEST

11 DOING THE NUMBERS HELPS TO MAKE SENSE OF THE OPTIONS

An investment-making framework can help to make sense of all the options for growth.

ACTIVITIES

• This includes the current earnings, and also modelling the marginal improvement in production as a result of any new expansion capital spending.

• How much is being invested to maintain the current business?

• How much is being invested to increase profit?

• Identify and measure the combined cost of debt and equity.

• Identify the time period required to achieve the required return.

AN INVESTMENT DECISION MAKING MODEL

Borrowing is leveraging a future cash flow

You need to understand and predict the cash flow

Make a plan, identify key performance metrics, monitor

and make improvements

What is earned from production?

What needs to be invested?

Does it justify the cost of capital?

This guide is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult one of ANZ’s financial advisers, please contact us on 0800 269238.

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HAVING IT ALL

“A lot of owners just say ‘that’s enough’ – rather than investing in opportunities for growth.”

BUSINESS OWNER, WELLINGTON

“Our focus is on continuing to do the same things – just doing them better.”

BUSINESS OWNER, TARANAKI

Experience, expertise and long-term focus are strengths and that means owners will ride out the troughs.

But – are some missing out on the extra financial gain that can come with increased focus?

Whatever our reasons for being in business, being smarter about how we do things is the key to achieving our business goals – whatever they may be.

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QUESTIONS FOR BUSINESS OWNERS

Are you clear about why you’re in business? How well does your business strategy/model reflect this?

Do you have the resources you need to deliver on your strategy?

How do you stack up in terms of reinvesting profits? What are you investing in and is it related to your strategy?

Being a business owner can be lonely- in terms of weighing up priorities, do you have someone outside the business providing advice or a sounding board?

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What could possibly go wrong?

M A N A G I N G R I S K S

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KEEPING ON TOP OF THE RISKS

“Focus on the things you can control – not on the things you can’t.” BUSINESS OWNER, CANTERBURY

“Growth has its own risks – it’s easier for the business to get out of control.” BUSINESS OWNER, AUCKLAND

QUESTIONS FOR OWNERS:

What could come out of the blue and radically disrupt your business?

How will your business run if ill-health takes you out of it for a while?

What are you doing to ‘shock proof’ your business against changes in customer preferences or demand?

1. Competition 2. Cash flow 3. Owner’s own health 4. Change in demand 5. Increases in major costs

Much less common: potential disruptions to business systems e.g. only 36% cited big changes to their business as a result of mobile technology. Is this cause for concern?

TOP 5 RISKS IDENTIFIED BY BAROMETER RESPONDENTS

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SUCCESSION: ‘MOVING ON’ HASN’T MOVED ON

QUESTIONS FOR OWNERS:

Do you have a plan in place?

If not, what’s stopping you?

If you were hiring a CEO today, would you hire yourself?

Biggest barriers: finding a suitable successor (49%), complicated by over-reliance on the owners expertise (33%)

49%

Around half of owners want to scale back and gradually exit over time

48% Almost none want to just close the door

1%

Succession is still an issue for 44% of owners (particularly worrying given owner’s health was identified as a major risk)

44%

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Is it a risk? A cost? Or a driver

of opportunity?

T E C H N O L O G Y

18 TECHNOLOGY IS A GAME CHANGER – BUT ONLY FOR SOME

HOW HAS MOBILE TECHNOLOGY CHANGED YOUR BUSINESS?

5% No change at all

30% A little change

28% Some change

36% Totally changed

ALL COMMERCIAL

SOME ARE GETTING INNOVATION FROM TECHNOLOGY – ARE YOU?

• Road Transport industry: extensive use to track fleet, monitor and improve driver behaviours, fuel efficiency.

• Roofing industry: sit with customers in their homes to create & visualise their new roof before it’s built.

• Car industry: doing entire deals on the phone, thinking about going to virtual showrooms.

SOCIAL MEDIA • working as a recruitment tool for young people. • becoming an alternative service channel: “my customers

answer each others’ questions”.

1. Easier to work anywhere 2. Improved productivity 3. Staff retention

WHY HAS IT CHANGED YOUR BUSINESS?

SOCIAL MEDIA

50% are using it for business purposes…. … but one third don’t

use it at all.

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QUESTIONS FOR BUSINESS OWNERS

“Customer satisfaction equals sales; upgrading technology equals margin.” BUSINESS OWNER, TARANAKI

“We’re not always sure what the ROI is from technology – but we are sure it’s an investment we need to make.” BUSINESS OWNER, MARLBOROUGH

Are you one of the 65% who say mobile technology hasn’t changed their business, or the 50% who don’t use social media for business? If so, are you sure you aren’t missing a trick?

Do you have the capability in your business to understand and exploit technology?

What are your youngest staff telling you? Do you talk to them about how they use technology?

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“The future ain’t what it used to be.”

Yogi Berra

G E T T I N G S M A R T

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2016: GETTING THE FOCUS RIGHT

“Where ever smart people work, doors are unlocked.”

STEVE WOZNIAK, CO-FOUNDER APPLE

Business owners are expecting things to get a bit harder in the future – but there’s still plenty of reasons for optimism.

The most successful businesses will be the smartest:

The right strategy with the right skills to execute it

Clarity and focus

Proactive about identifying and mitigating risks

Smart use of technology

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Actionable insights for business owners

available now

W H A T ’ S N E X T :

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ANZ CAN HELP WITH ANOTHER PERSPECTIVE

We hope this view from the ANZ Privately Owned Business Barometer has been thought-provoking and useful.

If you are a privately-owned business with annual turnover $2M+ and looking for another angle on growth, we can help:

More information about your own business: A Working Capital Insights Review can help uncover trends in your business and ways to use your cash better. Contact your ANZ Relationship Manager, or email Bernie.Hankey@anz.com

A Benchmarking paper can help your focus on profitability by comparing your business to the industry. Contact your ANZ Relationship Manager, or email Josh.Newton@anz.com

More information about your sector ANZ Barometer 2015 reports are available for six sectors on our ANZ Business Insights web page

More information about the market If you would like to get ANZ economic publications as they are released, visit our website for details.

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FOR BUSINESS INSIGHTS SEE anz.co.nz/barometer

DAIRY Drying off

A short term pain but long term optimisim

RED MEAT On the brink of greatness

Confidence is the key to achieving it

CONSTRUCTION Building on success

Business is booming – the change is avoiding the bust

MAORI BUSINESS Into the light

Maori businesses are leading the way

CRAFT BEER Fizzing

Managing the challenges of growth

ROAD TRANSPORT Driving ahead

But steering problems for small operators

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ABOUT THE ANZ BAROMETER

The ANZ Privately-Owned Business Barometer is a survey of privately owned businesses conducted on behalf of ANZ.

In 2015, around 4000 business and farm owners took part.

To interpret the survey findings, focus groups were held across New Zealand, each representing different sectors of the privately-owned business community. These represented commercial businesses, exporters, Maori business, agribusiness and key sectors including construction, road transport and food & beverage.

Disclaimer This document has been prepared by ANZ Bank New Zealand Limited for informational purposes only. It is a necessarily brief and general summary of the subjects covered and does not constitute advice. You should seek professional advice relevant to your individual circumstances. While the information contained in this document is from sources perceived by ANZ to be reliable and accurate, ANZ cannot warrant its accuracy, completeness or suitability for intended use. ANZ shall not be obliged to update any such information after the date of this document. To the extent permitted by law, ANZ nor any other person involved in the preparation of this document accepts any responsibility or liability for any opinions or information (including the accuracy or completeness thereof) contained in it, or for any consequences flowing from its use.

ANZ Bank New Zealand Limited.

anz.co.nz

Visit anz.co.nz/barometer, talk to your ANZ manager or email barometer@anz.com

FOR MORE INFORMATION ON THE ANZ BAROMETER