Financial difficulty can strike any business, in any industry, for any reason. Much of the time, cases that the McDonald Vague team take on are companies facing insolvency through no fault of their own, for reasons ranging from natural disasters or the loss of a key customer to employee fraud.
However, there will always be some sectors more at risk than others. The reasons for this evolve, but by understanding recent changes, it is possible to identify the NZ industries most at risk of insolvency.
1) Agriculture (cattle)
Given the recent government announcement of an initiative to eradicate Mycoplasma Bovis, it is quite clear that many primary producers will face a difficult next few years. The world-first plan, estimated to cost $886 million, will see mass culls of cattle stock right across the country over the next 10 years. It's a decision that is likely to have a widespread impact.
RBNZ warns M bovis could hurt financial system https://t.co/BdmQAbqfLP— RNZ News (@rnz_news) May 30, 2018
While designed for the long-term longevity of New Zealand's primary industries, this decision comes at an already tough time for agriculture. MBIE data indicates that the industry has a compound annual growth rate (CAGR) of just 1 per cent over the last five years, with Statistics NZ figures showing the cattle population had gone up by the same amount. For comparison, forestry has CAGR of 2.4 per cent, and aquaculture / fisheries 7.3 per cent.
Affected farms will be destocked, fallowed and rendered inactive for periods of at least 60 days. This poses a massive threat to agricultural assets and short-term cashflow, and could lead to insolvency proceedings, liquidation and bankruptcy. It will be critical that affected farmers start some comprehensive forward financial planning immediately.
2) Retail (clothing)
Technology provides great opportunities for local business to expand, but it also opens pathways for fast fashion to threaten profitability. IBISWorld research shows that between 2014 and 2019, clothing retail in New Zealand is likely to have annualised revenue growth of just 0.2 per cent as consumer habits change and global giants like Amazon make waves.
Having just touched down in Australia in late 2017, Amazon has already taken up significant commercial warehousing space and is undercutting many retailers for cost, volume of available assets and efficient delivery. Finding new ways of doing business, reaching customers on a more personable level and creating tailored user experiences that can't be replicated in the large-scale sphere that Amazon inhabits will be crucial for staving off financial difficulty.
This is an imminent challenge - Statistics NZ data shows that clothing and footwear retail trade dropped 5 per cent over the March 2018 quarter. If businesses cannot evolve with the market, creditors may have cause for concern.
3) Food services and hospitality
Typically a sector that deals in the lower end of the wage spectrum, food services and hospitality remain an extremely competitive industry right across the country. Statistics NZ figures indicate that the minimum wage increase of 75 cents (to $16.50 per hour) has already had an impact on the Labour Cost Index (LCI) in these sectors, alongside retail and manufacturing.
This, coupled with an overarching global trend towards protectionist trade policies, can make many of the ongoing costs for food services - especially those relying on imported goods - much higher. Managing cashflow expectations while also doing right by staff will be critical. To avoid insolvency or bankruptcy, the team at McDonald Vague can conduct a full assessment of any business' financial proceedings and determine a course of action to satiate creditors.
How to manage financial difficulties
This is to say nothing of the construction industry or businesses that have to deal with compliance demands introduced though the EU's General Data Protection Regulation. It is a time of great change, and companies that don't stay abreast of this could find themselves at risk of insolvency.
To ensure your business keeps both secured and unsecured creditors happy and can trade for long into the future, it always pays to do your financial due diligence. If you have concerns that your business or one you work with is struggling to keep up with its finances, contact the team at McDonald Vague for a confidential consultations about how we can help.