ACCOUNTANCY BEYOND THE NUMBERS with Hayes Knight

2011 – Doom And Gloom Or Rampant Recovery?

Will 2011 be the year where things all come right with a bang as many people predicted late last year? Or will it take a little longer for the economy to sort itself out and get back on track. Well, I guess it all depends on who you talk to, but you can’t deny the facts – and the facts are that the majority of the population are still doing it hard out there. In fact, my personal belief is that there has been a fundamental shift in our economy and we had better get used to this new trading environment – because it is here to stay. Whether you are in business, an independent contractor, an employee or a homemaker chances are you have been affected and will continue to be affected by the changes in our economy.

In general terms, things are difficult for businesses as everyone wants more for less. Prices are static at best or dropping in most cases, there is a lot of competition and customers expect to pay less and receive more hence margins are squeezed right throughout the supply chain.
For me, the headline in the NBR on 5 April summed things up. “Firms remain dubious about recovery – NZIER”. The New Zealand Institute of Economic Research conducts a quarterly survey of business opinion, and the economy looks likely to remain flat for a while, according to the latest one. Personally this survey holds a little more weight to me than the myriad of other surveys out there due to the size (around 3500 firms participate) and the fact that NZIER is a uniquely independent economic resource for the New Zealand economy. As it is a non-profit private organisation, the analysis and commentary is only for the benefit of members and is not used for any other political or self serving motivations.
This opinion is consistent with the majority of business owners that I am speaking with. Of course there are pockets that are doing extremely well, as always, but the vast majority see things as continuing to be tough for some time yet. This is consistent with the overall economy of showing little or no growth so far this year.

On the whole firms report higher costs, mostly due to higher oil and related prices, but an inability to pass those prices on yet. This results in profitability trending lower, and hence an inability for companies to invest in people, equipment or technology as they simply don’t have the capacity to do so. In the smaller and medium sized business market (say $1 million sales to $20 million sales levels) rising overdue debtors and increasing levels of stock held are continuing to place pressure on cash flow. This would also suggest that there is barely any recovery for small firms that the economy is still fragile. For consumers, this still means some bargains are out there – but be careful not to over commit your monthly income and be wary of additional debt. Speaking of debt, these results would tend to indicate that the Reserve Bank would have very little incentive to raise interest rates, so hopefully we will enjoy the official cash rate being held at 2.5% for the rest of the year. Keep your fingers crossed.

So what does all of this mean for us on a day to day basis? I guess it all depends on your own personal circumstances, but I am focussing on repaying debt, reducing personal and business costs and saving a little in the piggy bank for a rainy day.

Matthew Bellingham is CEO of innovative chartered accountancy practice Hayes Knight
www.hayesknight.co.nz