Bay of Plenty Business News March/April 2018

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26 BAY OF PLENTY BUSINESS NEWS March/April 2018 Financing the growth of your business How much and what type of finance a company needs to survive is unquestionably one of the most important aspects of business management. It is also, in our experience, the least understood. MONEY MATTERS > BY MICHELLE HILL Director and Partner at BDO Rotorua, Chartered Accountants and Advisers. To find out more visit bdorotorua.co.nz or email rotorua@bdo.co.nz As a business grows it requires more resources, unless, of course, it grows by means of a more effective allocation of its existing resources. However, even if this is the case, further growth will ultimately require more resources. The money used to finance a business comes from two sources, generally referred to as equity and debt. Equity is the capital injected into the business by its owners and consists not only of the initial and any subsequent capital invested, but also retained profits — that is, profits earned by the business and reinvested in it, rather than being withdrawn. Debt capital refers to borrowings made by the business and includes not only long and short-term cash loans obtained from banks or finance compa- nies, but also short-term credit provided by suppliers of goods and services to the business. Debt also includes finance provided by the way of leases or hire purchase to acquire plant and equipment. While it is possible for a business to be financed totally by means of debt, this is an extremely risky structure. Unless the business enjoys very high margins and has excellent cash flow, any decline in sales could mean an inability to service the debt and therefore, the end of the business. At the other extreme, a business could be financed totally by equity. While this eliminates financial risk, it also reduces the return that the owners of the business receive from their investment. So we have established that It is also important to understand that the majority of businesses that experience rapid growth can find themselves confronted by a cash crisis. as a business grows, it needs more resources and therefore, more capital. But it’s important to understand that the availability of capital for any business is limited, and it therefore follows that the growth rate a business can sustain and still survive is also limited. In other words, a business that grows too quickly will fail, and a business that grows too slowly will deny its owners of potential returns. When it comes to business growth, the fundamental issues that determine how quickly a business can grow are: • The extent of its net profit and hence, market demand and cost structure. • The willingness of the owners of the business to reinvest after tax profit to finance the additional resources. • The availability of debt finance, which depends on the capacity of the business to service the debt, and the security that can be offered to lenders. Many small to medium-sized business owners believe that banks have an obligation to lend them unlimited amounts of money - simply because they have excellent profit potential. However, banks are often reluctant to make unlimited funds available. In some cases, this is actually a blessing in disguise. Unfortunately, this reluctance can also mean that some extremely well-managed businesses, which have excellent potential, are denied access to much needed funds. It is also important to understand that the majority of businesses that experience rapid growth can find themselves confronted by a cash crisis. It is essential when you are planning a high growth strategy to ensure you have control over your finances, including receivables, stock, work in progress and margins. Additionally, you should give careful consideration to monitoring your cash requirements, and take action to restrain your growth rate the moment you see signs that your cash flow is tightening. In order to determine how fast you can grow your business, you need to look at your projected cash flow. You can only grow your business as fast as your cash flow allows. Once a business has reached a level of sales where good profits are being made and its rate of growth slows down, then comes the time to harvest the cash flow. TERMS OF TRADE CREDIT CHECKING / MONITORING DEBT COLLECTION Nick from EC Credit Control is the Bay of Plentys leading debt prevention expert. CREDIT MANAGEMENT TRAINING FOR A NO OBLIGATION MEETING CALL OR EMAIL NICK TODAY nick.kerr@eccreditcontrol.co.nz | P: 027 713 2128 0800 EC GROUP | www.eccreditcontrol.co.nz
Meet the lawyers who do things differently It’s been a year since The Law Shop took over Stratagem Lawyers in Mount Maunganui and opened their Tauranga office in Greerton. It’s been a fantastic twelve months for The Law Shop’s Partners Paula Lines, Stephanie Northey, and Sarsha Tyrrell, as their business continues to thrive. They now have a team of 15, working in both Rotorua and Tauranga. Their office on 1262 Cameron Road in Greerton is getting too small for the team, so they are in the process of moving again. Although the old building has character, it’s too hot in summer and hard to keep warm in the winter months. We’re down to earth and informal, and we genuinely care about our clients. We pride ourselves on delivering on time, every time, and it’s important to us to provide legal advice without the jargon, and we do it at a fair price “We are getting ready to move across the road to a larger and more comfortable office space. All our Tauranga business will be done from there when we move. This means we’ll close our small office at the Mount as well, but the Rotorua office stays as is,” Paula says. The Law Shop’s all-female team is big on offering personable advice and legal support to their clients, and they make sure to talk to people in everyday terms. The three Directors work extremely well together, and they have their individual strengths and expertise. Paula’s areas of work include the formation of and administration of trusts, relationship property agreements, commercial and business law, subdivisions and general law. Stephanie, who runs the Rotorua office, specialises in family law, mental health and employment law. Sarsha is an expert at helping families with legal issues including domestic violence, childcare arrangements and Child Youth & From left to right: Sarsha Tyrrell, Stephanie Northey and Paula Lines. Family matters (now Oranga Tamariki). “We’re down to earth and informal, and we genuinely care about our clients. We pride ourselves on delivering on time, every time, and it’s important to us to provide legal advice without the jargon, and we do it at a fair price,” Paula says. She explains that the team is approachable and flexible and that they are not nine-to-five people. “We don’t apply a one size fits all approach to our work, and we encourage our clients to communicate with us in a way that works best for them. We also know that being able to see us close to your home or workplace is important, so we are happy to travel and come to you, even outside “normal” working hours if that fits better with your timeframes,” she says. If you are buying or selling a property, setting up a business or if you need a Will, a prenup, or legal assistance around other matters, get in touch with the friendly team at The Law Shop. They will talk you through all the details in normal English and will give you expert advice that fits you and your unique situation. Feel free to contact them anytime, and start with an email to team@thelawshop.co.nz Our branches include: Rotorua - 1268 Arawa Street, Rotorua. Tauranga - 1262 Cameron Road, Greerton. STEPHANIE NORTHEY LL.B | Director Friendly legal advice that won’t leave you drowning in jargon PAULA LINES LL.B | Director SARSHA TYRRELL LL.B | Director For over 30 years, The Law Shop has been giving clear advice for a fair price to individuals, small and medium businesses in the Bay of Plenty. If your business needs advice on Agreements, Buying and Selling, Terms of Trade, Structure and Succession Planning, Banking, Leasing, Debt Collection, Franchising and Employment Services then we’re the team for you. Proudly serving our community from our offices in Rotorua and Tauranga. Call us on 0800 LAW SHOP or visit www.thelawshop.co.nz ROTORUA 1268 Arawa St Rotorua TAURANGA 1262 Cameron Rd Greerton Lawyers for everyday people
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Bay of Plenty Business News March/April 2018

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