Waikato Business News May/June 2021

4 WAIKATO BUSINESS NEWS May/June 2021
Call to council: Spend local
From page 1
Change may be coming, but
it will take time. City councillor
Maxine van Oosten accepts
the council is coming from a
standing start when it comes to
local and social procurement.
Van Oosten, who is on a
working group looking at the
issue, says for a start there is
the absence of data. “We don't
necessarily know from a company
what level of localism
they have.”
Having the data will be key
to measuring whether future
measures to support local
businesses bring about any
improvement. The solution
could be as simple as conducting
regular surveys with existing
contractors.
Vanessa Williams says the council could be more transparent
in its process and selection to support local business.
Van Oosten thinks attitudes
have changed with Covid, with
expectations of job opportunities
for locals.
“It's a slow process, sometimes,
working through council,
so it’s a bit of a journey.”
The working group provides
the opportunity to look
at the council’s role. “How can
we advantage local impact,
social impact? You know, what
might it look like? It's a chance
for us to explore what avenues
are available.”
In 12 months she wants the
council to be in a position to
make changes. “What I'd really
like to be able to do is to be able
to form an up-to-date strategy
around [procurement].” That
may include changing current
weightings relating to expertise,
environmental impact and
localism.
Van Oosten says she wants
local small businesses and
Māori and Pasifika businesses
to see they have an opportunity
to win council contracts.
“I'd really like to focus
around how we can advantage
Hamiltonians, especially as it's
the ratepayers’ funds that we're
spending.”
City head of procurement
Igor Magud makes the
point that measuring the
extent to which individual suppliers
are local is not a simple
calculation - does a firm with
a head office elsewhere but a
substantial staffing in Hamilton
count as local, for instance?
Nevertheless, he says the
city has an extensive local network
of suppliers. Of about
1500 total, 1200 “absolutely”
would be local.
“We have extraordinarily
prescriptive rules about how
we go to market and how we
tender. And quite rightly so.”
The policy follows seven
principles, of which value
for money is a “very important”
one on a list that also
includes the likes of openness,
fairness, accountability and
sustainability.
The principles do not
include supporting local, but
Magud says that is covered
under the attributes they use
when procuring.
Magud says the practice
from a policy perspective
hasn’t changed since Covid.
“However, we are putting forward
in the upcoming months
a set of changes or a set of suggestions
for our leadership and
for our elected members.
“We were very conscious,
however, of our supply chain
and our vendors through that
Covid period. So, in practice,
what we did was really work
hard to make sure that they
were paid, that there were no
issues with payments. And
actually, we changed our own
accounts payable process
during that time, to process
invoices faster.”
Van Oosten says the council
is looking at running
workshops for businesses and
contractors to give them an
understanding about how to
engage with council to get
information about upcoming
projects.
“We see that as being a
really enabling way to make
meaningful connections with
people.” It may also mean
council can engage directly
with businesses to let them
know when something in their
field is coming up. She makes
the point that larger companies
have greater capacity to do
some of that groundwork, but
it is much harder for smaller
businesses.
Well-established Hamilton
printing firm
Print House says it
can be difficult to know who
to deal with at the city council
when it comes to quoting for
printed material, and they are
seeing some jobs being produced
outside the region which
they have not had an opportunity
to bid for.
They do have some council
contracts, including a
long-standing stationery one,
but have capacity to do far
more for the council and are at
a loss to know when and how
firms from outside the region
get this opportunity ahead of
them.
“We can't work out, from a
print point of view, their procurement
protocols, because
I suppose if we have a single
gripe, it's that we don't get
much opportunity to quote for
their work,” says CEO Brett
Phillips. “So, how do we get
that opportunity?
“There are other companies
we deal with who use
other printers as well. Along
with us, they may have two
or three preferred suppliers,
so you at least get an opportunity
to quote no matter what
the job is.” Phillips says he
knows other long-established
business owners who have
Continued on page 6
Business ownership seven times more
profitable than NZ sharemarket
Investing by buying a business, rather than
investing in other people’s businesses on
the New Zealand sharemarket (NZX50), can
deliver up to seven times the return.
That is the key finding from
data released by ABC
Business Sales comparing
average returns (dividends) on
New Zealand’s stock exchange
(NZX50) with the country’s
average returns (profit) for small
to medium sized businesses
(SMEs).
“There’s potentially a seven
times greater return on offer
from investing in a business
compared to investing in the
NZX50,” says ABC Business
Sales Waikato owner Greg
Dunn.
“The NZX50’s average pretax
yield (dividend) is 4.2% on
cash invested whereas the average
pre-tax yield (profit) for
New Zealand SMEs equates to
a 29% return on cash invested –
effectively a seven-fold return.”
Greg says the analysis
excludes any capital gains for
each asset class, and the pre-tax
profit for business ownership is
also based on the business being
fully managed with limited input
from the investor.
“That means we’re comparing
passive investment scenarios
as much as we can, so it’s not
like these are businesses where
owners are expected to work 12
hour days or anything like that.”
Additional supporting factors
for business ownership in
this comparison is that effective
due diligence can mitigate many
of the risks involved in purchasing
a private business, and an
owner’s level of control/management
in a private business
investment is much greater than
the limited influence shareholders
have over businesses listed
on the NZX 50. Greg says this is
the sort of information that could
be encouraging young New Zealanders
towards a goal of saving
to buy their first business instead
of speculating in the sharemarket.
“It’s also about helping to
educate people on the positive
trends of SME business ownership
in New Zealand.”
*The average business price
in New Zealand is currently
$703,000 and based on an
EBITDA average multiplier of
3.5x the average pre-tax yield
(profit) equates to a 29% return
on cash invested.
The NZX50’s average pre-tax
yield (dividend) is 4.2% on cash
invested. The NZX50 average
EBITDA multiple is 14.5x which
is significantly higher than the
3.5x EBITDA average multiple
for SME businesses.
The data, sourced from our
ABC Business Sales’ Market
Intelligence Report shows that
the average business sales price
for SMEs in New Zealand is
approximately YTD March
2021 – $703,701.
This data is derived from
ABC Business Sales annual
activity. ABC enjoys a dominant
30%-40% market share in
the $0-$5m SME business sales
market.
In total there are approximately
just under 1000 sales per
year within the entire NZ SME
business sales ($0-$5m) market.
In keeping with ABC’s dominant
share of that market, their averages
were derived from sales
volumes of YTD March 2021
– 380 business sales. The data
specifically looks at completed
transactions in the $0-$5m price
bracket of business sales which
represents 90% of New Zealand
businesses. There are 167,000
NZ businesses designated as
SMEs with employee numbers
ranging from 1-19.
Institutional transactions
(which can be in the hundreds of
millions) have not been included
to prevent a skew in the data.
10 ways to maximise profit
for a small business
Tips supplied by Greg Dunn of
ABC Business Sales Waikato.
Business profitability is the
result of revenue less costs, so
these are the two levers we can
pull to improve profits.
How to increase
revenue/sales:
• Find new customers.
• Provide new services.
• Increase your service levels
to existing customers (essentially
up-sell to your existing
customer list).
• Increase conversion rates
(increasing the proportion of
sales inquiries into confirmed
sales)
• Concentrate on quality
and service and avoid
discounting.
How to decrease costs:
• Ask suppliers for discounts
if you pay by cash or it is
a prompt payment (debt is
cheap so worth utilising an
overdraft to promptly pay a
supplier in return for a discount)
• Keep your internal systems
at optimal levels. This will
reduce any theft/slippage in
the business.
• Provide appropriate incentive
schemes for your staff
so their pay increases only
when your profitability
increases (do NOT align it
with sales only).
• Understand your financials
in detail so you understand
which products and services
make the highest margin
(you do NOT want to spend
all your time selling products
that don’t make you profits).
• Put a system in place that
makes you review all your
overhead costs at least quarterly,
many of your suppliers
will often have CPI increases
built in annually and you
need to be able to make sure
these increases are debated
and controlled.
The overarching point I’d
say to any business owner is
great people make great businesses,
so take the extra time
when you are recruiting people
as it will pay off in spades!
Alongside the comparative
data ABC has also been spending
time on how to best utilise
the data we accumulate as part
of our day-to-day operations. 35
years of history in the business
sales market has provided ABC
with rich data regarding business
sales statistics.
In particular, we have just
compiled a business multiples
database that allows all our brokers
to look at average multiples
per industry based on thousands
of transactions over the past
decades.
Business multiples are
still the most commonly used
method to value a business in
today’s market; the simplicity of
using EBITDA/EBIT x industry
multiple allows this process
to be easily understood and
widely used.
For any business owners
who want to understand what
the average business multiple is
for their industry, please feel free
to contact me or one of the ABC
Waikato team.
We are the industry
experts and have the data to
prove it! Feel free to give me
a call on (027 2930377) or
Scott (027 4735425) for a no
obligation chat.
- Supplied by ABC Business