Home > Updates > Building economic resilience: A guide for SMEs
In the fast-paced world of small and medium enterprises (SMEs), economic resilience is more than just a buzzword; it’s a vital survival strategy. In a recent Nexia podcast, Rebecca Harding sat down with Jono Boyce from Nexia Christchurch, to discuss the intricacies of financial stability and risk management for SMEs. With his background as a tax consultant and his experience in R&D and capital programs, Jono offers a grounded perspective on the challenges business owners face today.
Economic resilience, at its core, is the ability of a business to withstand shocks and adapt to disruption while continuing to operate and grow. Jono distills this concept into maintaining a stable base that can handle multi-dimensional challenges. While financial resilience is often the focus, Jono emphasizes the equal importance of operational resilience. This involves having backup suppliers, robust procedures that aren’t dependent on key individuals, and secure technology.
The current economic landscape is fraught with challenges for SMEs. Jono identifies rising operating costs as a primary concern. From insurance premiums and energy costs to labor shortages and wage pressures, the bottom line is under constant threat.
“I think if there’s a number one, it’s rising operating costs… those three areas are really putting huge pressure on your bottom line.” – Jono Boyce
Furthermore, weak and unpredictable consumer spending, especially in sectors like hospitality and retail, adds a layer of revenue pressure. Access to finance remains a hurdle, with banks maintaining a low appetite for risk and setting high bars for lending.
One of the most challenging strategic decisions for an SME is balancing the need for a financial buffer with the desire for growth. Jono acknowledges that there is no one-size-fits-all answer, as risk appetite varies among owners. However, he provides a general guideline:
“I think 12 to 14 weeks or three months’ worth of working capital in reserve gives rise to a fairly stable base… you would be hitting that buffer and maintaining that before you look at growth.” – Jono Boyce
Investing in growth too quickly without a stable base can be a trap. Consolidation and a clear understanding of your core strengths are essential before expanding into new, unfamiliar divisions.
For a business owner, identifying vulnerability before a crisis hits is crucial. Jono points to deteriorating liquidity as the primary signal. Business owners should monitor their current and quick ratios – measuring current assets against current liabilities – to ensure they can pay their bills with available cash and liquid assets.
Other red flags include a mismatch between how long it takes to pay bills versus receiving customer payments and a sudden climb in the debt-to-equity ratio, indicating a heavy reliance on short-term finance.
Resilience is built through preparation. Jono suggests developing a cash flow forecast and running various scenarios:
Identifying fixed versus variable costs is also part of this exercise, allowing owners to know which expenses can be quickly curtailed in a downturn.
Perhaps the most common mistake SMEs make is the “I’m alone” mindset. Jono encourages business owners to seek external perspectives from boards, lawyers, accountants, or mentors. This prevents the isolation that often leads to burnout and poor decision-making.
In the age of AI, risk management must also evolve. While AI offers immense opportunities, it brings risks like data leakage, cyber-security threats, and the danger of “over-automation” without proper auditing.
Building economic resilience is an ongoing process, not an annual meeting. By maintaining a live risk register and a robust cash flow forecast, SMEs can navigate the complexities of the modern economy with confidence and agility.
Nexia New Zealand is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of chartered accounting, business advisory, corporate advisory, tax and audit services.
Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.
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