Category Archives: Pro Experts

Hawke’s Bay’s leading professional service advisers & leaders

Time to take stock of employment law compliance

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Welcome to 2020

In the rush of business, it is easy to take our eye off the ball when it comes to employment law compliance. The beginning of the New Year is a good time for many businesses to take stock and review changes to employment law and how they may impact on your business. Here is a brief overview of the key changes that have taken place over recent years:

  1. Tougher penalties and sanctions for breaches of employment standards. You are required to keep records in sufficient detail to demonstrate that you have complied with minimum entitlement provisions.
  2. If you do not provide a written employment agreement to an employee, a Labour Inspector may issue you with $1,000 infringement fee.
  3. Addressing zero-hour contracts. All employment agreements must include any agreed hours of work and, if you ‘require’ an employee to be available for additional hours, you must include an availability provision in the employment agreement and ensure the employee receives reasonable compensation for the ‘required’ availability. Also, the introduction of “shift cancellation” provisions requires you to provide reasonable notice or compensation to cancel a shift.
  4. Secondary Employment. You cannot restrict secondary employment for employees unless you have a genuine reason based on reasonable grounds to do so, and record these grounds in the employment agreement.
  5. Before any deductions are made in accordance with a general deductions clause, you must first consult with the employee.
  6. Reinstatement is back as the “primary remedy” if requested by an employee when a proceeding is before the ERA or employment court.
  7. Meal Breaks and Rest Periods are specified as having to be at least one 30 minute unpaid break and two paid 10 minute breaks in a typical eight hour day. Unless there is agreement about when these breaks are taken, the law requires the breaks to be taken at times as specified in the Act, so long as it’s ‘reasonable and practicable’ to do so.
  8. 90-day trial periods have been restricted to businesses with fewer than 20 employees.
  9. After 6 months service, employees are entitled to up to 10 days paid per annum to deal with the impact of family violence. This could relate to dealing with the impact of historical violence that occurred prior to them being employed by you.
  10. Parental Leave. Changes to these provisions include extending payments and entitlements to a wider group, the introduction of ‘keeping in touch’ hours during the paid leave period, and allowing employees to resign and continue to receive payments from IRD.
  11. Collective Bargaining provisions have been strengthened. This has included restoring the duty to conclude collective bargaining as a part of Good Faith, the provision of reasonable paid time for delegates to undertake union activities, and the requirement to provide new employees with information about the Union (provided by the Union). The 30 day rule has also been restored, which means that for the first 30 days, new employees must be employed under terms consistent with the applicable collective agreement.

Coming Up in 2020

12. “Triangular Employment” relationships. This refers to the situation where you have the employees of other contractors on your site, but you effectively control their day to day work. From 27 June 2020, if such an individual is dismissed unfairly, they will have the ability to ‘join’ your company in any Personal Grievance proceedings.

13. The Ministry of Business, Innovation and Employment (MBIE) is currently reviewing the concept of ‘vulnerable / dependent contractors’. We are also waiting to see the draft legislation in relation to a new Holidays Act and Fair Pay Agreements.

These changes, along with whatever is promised by the political parties, will ensure that the employment law space remains dynamic and subject to change in 2020.

The Value of Building your own Castle

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Anecdotally, despite rising construction and land costs, the existing high house prices have made building a house more attractive relative to buying an existing one.

This is not surprising given the amount of subdivisions that have become available such as Frimley, Northwood in Hastings, Arataki in Havelock North and Parklands, Guppy Road and Te Awa in Napier being the bigger and more popular choices. However, if you are considering building your own property there is a process which most homeowners will need to go through especially if you require finance from a lending institution.

Whether you build or renovate your property, the bank will often ask for a valuation report ‘As If Complete’, to determine if the cost to build, plus the land value aligns with the Market Value (MV) of your property. When it comes to building, planning and management are important, especially when it comes to accurately costing the build. A Registered Valuer can provide you with a valuation of the house ‘off plans’ to determine if the cost to build plus land value aligns with the market value of your property.

How can a Registered Valuer help?

When you build a house ‘off plans’, a valuation report provides information on the following:

  • The Market Value (MV) ‘As If Complete’
  • Analyses ‘Cost to Create’
  • Determines whether the project is over capitalising
  • Provides full report to your Financier to rely upon to lend Mortgage Security so you can pay your builder
  • Confirms your home is being built as per the plans and specifications.What does a Registered Valuer need?
    Full set of Stamped & Approved plans by the Local Territorial AuthorityA copy of your building contract stating build cost and any exclusions

    Specifications of

  • All building materials
  • Fittings to be installed
    Details of other site improvements, such as:

• Landscaping, fencing, gardens

• Driveway, paths, swimming pools, paving,

• Associated out buildings (e.g. shedding)

• Services to the site

What are Progress Payments and Progress Payment Certificates?
As the build advances, progress payments will be needed to pay for the work completed by the builder. Therefore, your lender requires a ‘Progress Payment Certificate’ which is undertaken by a Registered Valuer verifying that the appropriate site works have been completed, and what is still required to finish the project. On your instructions the Valuer will re-inspect the property to assess the percentage of works complete and a ‘Progress Payment Certificate’ is issued for the lender to release the funds. Any progress payment recommendation is based on the full funds to be drawn down less a calculated amount ‘Cost to Complete’ less a ‘Saleability Allowance’. The number and frequency of ‘Progress Certificates’ required will depend on your personal financial circumstances, however the following can be used as an estimate:
• Slab down, framing up and roof on
• Fully enclosed and secure all exterior cladding on and all exterior windows and doors in.
• All interior walls lined and ceiling lined as well as all electrical and plumbing in place.
• All interior and exterior decoration complete and all fittings to bathroom, kitchen as well as all electrical fittings in place.

• Fully complete dwelling with Code of Compliance Certificate issued, all landscaping and other improvements included in the valuation done.

Items included in the ‘Progress Payment Certificate’ include all items that are physically fitted in place. We cannot include items that are on site but not fitted, such as: • Stockpiles of building materials

  • Window and door joinery on site but NOT fitted
  • Fittings/appliances on site but not fitted

If Progress Payment Certificates are necessary, try to hold off as long as possible before instructing the Valuer to proceed. That way more building work will be able to be included in the calculations.

Building your own home can be hugely rewarding, however it is worth taking the time to understand the true value of your new home, not just in cost and materials.

Are you ready for your business to grow?

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The goal of most businesses is to grow. Growth is exciting. Growth implies success. More sales, more customers, more staff, more profit. But the reality can be very different.

We’ll explore some of the common issues SMEs face during a growth stage; and offer some practical advice for how to work through them. Issues like how to approach business planning, how to prepare for change and where to go for further support and advice. The goal is to help you face challenges with confidence and clarity – giving you space to focus on the next exciting stage for your business.

What does it mean to have reached this stage of growth within your business?

It means your business model is promising and you’ve achieved a degree of self- sufficiency; but you’ve likely outgrown your initial set up. It also means that it’s probably time to expand your controls and systems for managing the business – which means getting ready for new people, new skills and new approaches to come on board. To facilitate business growth, leadership must have the right attitude and mindset. Too often we see leadership teams who are happy with ‘Business as usual’ and this alone can stifle any growth potential.

The below are examples of common barriers that can often restrain growth potential. Reviewing these common growth obstacles alongside your current business plan will help to minimise the effect these barriers may have on your business growth.

• Over-dependency on founding team
• Constrained by initial systems – IT, communications, reporting

• Business is responsive and flexible; but lacking adequate analysis and planning

• Flat business structure

• Loyal staff; but skill gaps are showing

• Administration overload

• No contingency planning

• Not robust enough to survive a major change

Understanding where you’re headed

With all the pressures associated with growth, it’s important to take stock. Understanding where you’re at in the evolution of your business can be just as important as where you’re headed next.

Before you start setting growth goals, it is recommended that you undertake a review of your current business plan to ensure you are achieving your current goals. When completing these reviews, it is often helpful to bring in a third party to undertake this process alongside you. Working through a plan with a qualified adviser with knowledge of your industry can help you prepare for the known challenges that often affect businesses specifically in your sector. This insight can be invaluable when setting goals and objectives for any future business plans to ensure that your investment in growing your business results in an improved market share.

In order to facilitate successful growth a review of your business may include:

• Established controls and systems for managing the business

• New people, approaches and disciplines • A defined business strategy, with regular reviews

• The effectiveness of the management structure

• Flexibility and scalability of IT systems • Appropriate performance indicators; training and education for new staff

• Willingness for business to continue to evolve and grow

• Succession planning and clearly defined exit strategy

Getting bigger and more successful often results in a struggle to prioritise competing business tasks pulling you in different directions. The three main sources of conflict in businesses are growth, cash flow and control.

Business planning and reporting helps business leaders make strategic decisions, using the data to justify each move made. A business that doesn’t generate cash will not succeed; but sustained growth will chew through cash. There’s a similar tension between growth and control. When it comes to raising funds for growth, good sound planning can often make all the difference. Pursuing business growth can often mean you operate at a loss for some time, as you’ll be investing more to finance things like new warehousing, products or increasing stock levels. It is important that you have enough capital on hand to finance these new projects and sound reporting processes in place to keep track of this spending.

Going through a growth stage is the perfect time to review your reporting processes, taking full advantage of the new technology available. Which functions in your business need be added or expanded? Who do you need to bring in to make it happen? Where do you need to focus your key people? These are all critical questions for growth. Ensuring you have systems implemented that can handle your business growth is paramount as you don’t want to be held back by these easy fixes once your growth trajectory takes off.

Strong Wifi is critical to business success

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In business we are using more technology than ever and the internet is now an essential service for our business. With an increase demand on online applications and services having good practical secure Wifi is critical.

Business demands technology to be mobile, flexible and not hardwired when possible.

Sometimes we forget that we are still using the standard modem that was provided to us when we signed up for broadband services. This can be enough, but we are seeing a lot that isn’t.

There are several issues to consider when looking to address the WiFi need of the businesses.

  • How many devices are going to be connected?
  • What type of data will be transferred, Streaming, Skype, etc
  • SecurityConsider the number of devices connecting and take into account not only laptops and PCs but also mobile devices and other connected devices like sensors, alarms and any thing that may be IoT.If you only use the internet for online banking and general work-related activities that don’t need large amounts of bandwidth then you only need think about the location of the modem to ensure strong signal. But if you have a greater need then its time to look at upgrading to commercial grade access points modem and security.

A common question often centres on the need for a business-grade access point over the many less-expensive alternatives with similar specifications. It is worth noting that an important premise for a business- grade access point is reliability under sustained, heavy usage, which is unlikely to be the case from an access point picked from the bargain bin

The cost of the hardware has come down significantly, making the choice to replace your standard modem at the same time as installing a business grade access point very cost effective.

Not only has the cost of the access point come down but the functionality as become more user friendly. A number of Access Points can be managed via a cloud base portal.

The tools are available to enhance your existing network and can be easily installed. But what shouldn’t be forgotten is how you ensure the security of you data and importantly customer data.

As more Internet of Things (IoT) smart devices are introduced into company networks, it’s becoming increasingly difficult to assure the security of those devices and the network where the company’s most precious information is sited.

For example, a rather unusual and recent case involved a casino whose database was hacked via a smart thermometer monitoring water in an aquarium located in the casino’s lobby. Once the system had been breached, the hackers were able to pull the database back through the thermometer and into the cloud.

It’s important when storing customer data that you have the tools in place to protect it. In all cases an IT professional should be consulted when upgrading to ensure you are protecting the data and are meeting compliance requirements.

Consider the nature of the work your employees do and how much of that is dependent on the internet. If you work in a highly internet-dependent field, then having a strong, business-grade internet connection that can handle all of the traffic that is using it each day will be vital to your employees being able to remain productive throughout their workday.

A slow internet service can frustrate employees who are trying to be productive with their workday. Keeping employees happy with the tools they need to complete their job in a timely manner (such as business- grade internet) makes the investment worthwhile.

Getting the right solution for your business and needs will mean you are well place to take advantage of new technologies that will be relevant to you. Staff will be more productive, and customers will be confident you protect their data.

If you want to know more then please feel free to contact me.

Shock and Orr Reserve Bank head prepared to make big calls

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Currently, it is very difficult to speak of anything but the low interest rates affecting savers and investors. At the time of writing1, the Reserve Bank of New Zealand has taken a breather with its September 2019 announcement and left the Official CashRate(OCR)at 1.00%.After the hefty movement of 0.50% “south” on August 7, this is welcomed in most sectors.

The OCR influences the price of borrowing money in New Zealand and provides the Reserve Bank with a means of influencing the level of economic activity and inflation. An OCR is a conventional tool by international standards.2 However, for many, it is seen as a blunt instrument that has far wider consequences. This includes directly affecting deposit rates, especially at main street banks.

Banks use domestically raised capital (term deposits) to help fund their lending book. Therefore, “the spread” between their deposit rates and their lending rates is effectively the margin off which they operate. This revenue, as well as transactional fee and service fee revenue, is the primary source of their well-published profits.

We, therefore, rely on competition in order to be able to shop around for better deals, but as rates remain so low, the main banks are starting to look rather homogenised.

It was widely reported3 recently, that the Financial Markets Authority (FMA) has found a further decline in interest rates on bank term deposits is causing more savers to consider alternative investments.

The financial watchdog said a survey of 195 term-deposit holders in August suggested 43 per cent were likely to invest less in term deposits because of low interest rates. Of those who were considering changing their investment strategy, a quarter were considering shifting savings in search of better returns.

Certainly, in our organisation, we are seeing a steady increase in queries about deposits as investors search for regular income and quality yield, without being locked in. More so than ever, investors and savers are asking questions about quality, liquidity and generally, “what do you do with my money”? I find this heartening, as for me it seems the message is filtering through that yield is important, but quality, management and liquidity are all factors that need to be considered.

Even though there is a search for yield, the preservation of capital is front of mind, as it should be.

The low-interest rate environment is currently forecast to continue, with little sign of an end any time soon. Investors and savers can no longer wait “for things to get better”. Mainly because the outlook is that it won’t, any time soon.

Like an English tabloid paper’s perpetual exploration of tacky metaphors, I read4 with great amusementthat the moniker “shock and Orr” is starting to be used.

Certainly, Reserve Bank Governor Adrian Orr (above) has ingrained himself in the financial services psyche of New Zealand. In a previous profession, I remember clearly learning of “shock and awe” in military doctrine with the words “overwhelming force from the outset” still ingrained in my mind 25 years later. In Mr Orr’s case, this cap certainly fits.

In my opinion, he’s a strong and bold Governor, not only for his large cut of the OCR in September, but also for his continued statements regarding bank conduct and all things economy. I am excited by the fact that we have visible economic leadership in New Zealand. The Reserve Bank Governor should be a “front of office” role. For this, personally, I applaud him.

Therefore, moving forward, we should watch Mr Orr with a deep fascination. He must navigate the country through what is largely uncharted waters. Interest rates are historically low and are forecast to remain so. The OCR is a blunt instrument and the biggest trick in his bag of tricks. I wonder how often he dares to play it.

One thing is for sure, this Governor is probably not offended by the term “shock and Orr”. He may even like it…

New Trust Act – are you prepared?

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On 30 July 2019, the Trust Act 2019 received Royal Assent signalling a modernisation of trust legislation that, given the number of trusts in New Zealand, we should all be aware of.

The new Act will replace the Trustee Act 1956 and its purpose is to make the law more accessible to both trustees and beneficiaries of trusts.

Significantly the new Act does not come into force until 30 January 2021 – given the extent of the changes, the new Act provides for an 18-month lead in. While this is a substantial period, time will pass quickly and the new Act will be in force before we know it.

The new Act will apply to existing and new trusts, and therefore we recommend that all existing trusts are reviewed in light of the changes and in some cases varied or wound up.

Some of the key changes being introduced by the new Act are:

Trustee Duties

The new Act identifies and defines mandatory and default duties of trustees.

The five mandatory duties that cannot be avoided or excluded in the trust deed are:

  • a duty to know the terms of the trust,
  • a duty to act in accordance with thoseterms,
  • a duty to act honestly and in good faith,
  • a duty to act for the benefit of beneficiaries, and
  • a duty to exercise the trustee’s powers for proper purposes.The ten default duties are not compulsory but will apply unless they are expressly excluded in the trust deed. The default duties are:
  • Exercise reasonable skill and care in administering the trust, having regard to any special knowledge or expertise that the trustee has, or to any special business or professional knowledge or expertise if the trustee is acting in the course of a business or profession;
  • Invest prudently, with the same regard to special knowledge or experience as above;

• Not exercise their power for their own benefit, whether directly or indirectly;

• Regularly and actively consider whether they should be exercising their powers;

• Not bind or commit trustees to the future exercise or non-exercise of their powers;

• Avoid conflicts of interest;

• Act impartially between beneficiaries;

• Not profit financially from being a trustee;

• Not take any reward for being a trustee; and

• Act unanimously with the other trustees. Trust Duration

The length of a Trust’s life has been extended from a maximum of 80 years to a maximum of 125 years.

Duty to hold documents

The new Act requires trustees to retain core documents, so far as it is reasonable. Where there is more than one trustee, each trustee must hold:

The trust deed and any other document that contains terms of the trust;

Any variations made to the trust terms;

And they must be satisfied that at least 1 of the trustees holds the other required documents and that they will be made available to the other trustees on request. The other core documents are:

• Records of trust property identifying the assets, liabilities, income and expenses of the trust;

• Records of trustee decisions made during the trustee’s trusteeship;

• Written contracts entered into during that trustee’s trusteeship;

• Accounting records and financial statements prepared during that trustee’s trusteeship;

• Documents of appointment, removal, and discharge of trustees;

• Any letter or memorandum of wishes from the settlor;

• Any other documents necessary for the administration of the trust;

• Any of the above documents that were kept by a former trustee and passed on to the current trustee.

Disclosure Obligations

The new Act favours keeping beneficiaries informed and clearly outlines the basic trust information that is to be provided to every beneficiary, namely:

• that they are a beneficiary;
• the name and contact details of the

trustees;

• changes to the trustees as they occur; and

• the right of the beneficiary to request a copy of the terms of the trust or trust information.

Trustees may only refuse to provide information to beneficiaries after considering both their general obligation to provide information and a series of factors as to the nature of the information and the practicalities of restricting that information.

The implications of this are clear, particularly in circumstances where it has always been considered appropriate for a person’s interest in a trust not to be disclosed to them.

These are only some of the changes however in general terms, the new Act, increases the rights and protections for beneficiaries while also imposing more responsibility and prescriptive requirements on the trustees. The changes are likely to make trusts more transparent for beneficiaries but also more intensive to administer for trustees and could lead to changes both to trust documentation and administration.

If you are a trustee of a trust, then we recommend that you speak to the trust’s lawyer in the coming months to consider the changes as they relate to the trust in question.

Property investors predict positive investment conditions

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Commercial and industrial property investors see positive investment conditions over the next 12 months in Napier and Hastings, according to the latest Colliers International commercial property investor confidence survey.

A net positive (optimists minus pessimists) 25 percent of respondents expect investment conditions to improve over the next 12 months, which was up slightly from the previous 2Q 2019 survey.

The survey also revealed quite a significant shift up in the number of optimistic respondents.

Approximately 41 percent were optimistic in the 3Q 2019 survey, versus 30 percent in the Q2 2019 results. More respondents shifted out of the neutral category, one of the largest shifts recorded in the Colliers survey.

There are a few key features in the Hawke’s Bay sector that is driving the positive sentiment.

Interest rates at all-time lows, with an expectation of rates to fall further, is driving some of the sentiment.

Access to capital remains a key element to this, and discussions around higher margins from potential changes made by RBNZ on capital requirements for banks (announcement expected in November) will most likely benefit experienced investors who can show a positive track record. Banks remain competitive for quality opportunities.

Another driver of the sector in Hawke’s Bay market is the demand and supply balance. Opportunities to lease space have been reducing recently. Also, general market

conditions have meant owners have been able to benefit from rising rents.

In the office sector, we have seen rents climb steadily over the past year, especially for the highest quality properties. Prime rents typically average between $275 per sqm and $320 per sqm. Prime average yields range between 6.10% and 7.00%.

In the retail sector, prime retail rents have been broadly flat over the past year, but prime average yields continue to sharpen, now ranging between 5.60% and 6.50%, down around 60 basis points in 12 months.

Industrial market conditions carry a lot of favour with investors with rents edging up higher as well. Average prime yields in the industrial sector are heading sub-6% in some locations.

Policy set to protect productive land

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In April 2018, MfE and Stats NZ published the Our land 2018 report, which is a comprehensive assessment of how human activity is affecting the state of New Zealand’s land to date. The report identified two main pressures facing highly productive land on the edge of towns and cities:

  • expansion of urban areas, and the accompanying loss of productive land; and
  • change of land-use on the fringes of urban areas, in particular the increase in lifestyle blocks.In response, the Government has proposed the National Policy Statement – Highly Productive Land (NPS-HPL) to prevent the loss of productive land and promote its sustainable management.

    The overall purpose of the proposed NPS-HPL is to improve the way highly- productive land is managed under the Resource Management Act 1991 (RMA) to:

  • recognise the full range of values and benefits associated with its use for primary production
  • maintain its availability for primary production for future generations

• protect it from inappropriate subdivision, use, and development.

Alongside this, the Action for Healthy Waterways Summary document, which is an ‘at a glance’ summary of the discussion document informing amendments to the National Policy Statement for Freshwater Management (NPS-FM), reports urgent action is required to improve water quality. In summary the amendments to the NPS- FM are seeking:

• better management of stormwater and wastewater

• no further loss of wetlands and streams

• tighter controls to prevent sediment loss from earthworks and urban development

• farmers and growers understanding and managing environmental risks and following good practice

• new standards and limits on some farming activities in some regions or catchments.

The Government is also continuing work in other areas of freshwater, including allocation of allowances to discharge nutrients, institutional/ oversight arrangements for the freshwater management system, and addressing Māori rights and interests in freshwater.

It is a busy time for both the rural and urban environments. On one hand the NPS-HPL is all about preserving production potential, but on the other hand primary producers feel that the combined effect of increased restriction and considerable changes to operating procedures arising from freshwater reforms, exacerbated by short timeframes, is limiting the potential and certainty of the primary sector.

Issues associated with urban environments are ALSO facing similar ironies. On one hand, communities want to see rapid improvements in water quality, but are apprehensive around changes to stormwater discharge requirements and increased rates to invest in improved infrastructure.

Here in Hawke’s Bay we’re in the thick of it, we’ve got all the issues at our back door about to be played out during the next term of Council.

There will be debates around competing interests, timeframes and what should be invested in, and our Councillors and Councils will need to grapple with changes at both the local and national level and how national policies and local outcomes can be aligned to achieve the sought of place we want to live, work and play in.

A national direction and framework is important in managing complex issues, however the question will be how much we can plan for our own communities and how free we will be to develop our own methods and approaches taking into account the very realistic needs and constraints of the different sectors of our community.

The first test will come with the Hawke’s Bay Regional Council TANK Plan Change, which will introduce new management regimes and requirements affecting landuse, the use off freshwater and discharge activities in the Tutaekuri, Ahuriri Ngaruroro and Karamu catchments. This has been 7 years in the making already, so it’s going to be very interesting to see how things play out in what is arguably a far more sensitive and demanding environment now.

Revitalising the value of Hastings CBD

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Williams’ Harvey undertakes a retail shop occupancy survey of the Central Business District (CBD) of Hastings City.

The survey is based on retail shop numbers and considers main street retail, side street retail and overall retail vacancies. Our last survey was completed in October 2018 and recorded 10.20% of the retail space within Hastings to be vacant which equates to 25 retail shops, this is down from 11.87% in April 2018, 13.47% in October 2017 and 16.73% in November 2016. This latest survey is showing some continued improvement and is the lowest level recorded since October 2013. While some tenants have closed their doors others have relocated within the Hastings retail area. Relocating tenants have been able to use the market conditions to their advantage and gain a better quality premise within a better retail position and generally at a lower rent level. This has placed downward pressure on retail rent levels at the present time.

The Hastings District Council have been working hard on plans to revitalise and create a strong CBD with their Hastings City Centre Vibrancy Plan whose key target outcomes were to encourage more people and more business by creating an environment and activities whereby “customers, workers, residents, students and visitors” could experience and enjoy the Hastings city centre. This strategy was kick started by the redevelopment of the 100 – 300 Heretaunga East block as the removal of the Albert Hotel gave way to green space and regeneration of retail and hospitality outlets. As a continued part of this vision Council have taken the bold decision to purchase two main street retail premises with plans to convert them

into alley way ‘pocket parks’ and thus soak up excess retail space. The first pocket park now complete is in the 300 West Heretaunga Street block which links a previously little known public car park to the main street and creates different types of retail opportunities for adjoining owners. The second and more substantial development pocket park will link the 200 West Heretaunga Street block to Queen Street West. More significantly this involves a major redevelopment of the historic Hawke’s Bay Farmer’s Co-operative Building which will provide the opportunity

for retailers to develop different types of retail as well as much needed city car parking.

Another substantial development which will have an impact on the CBD and surrounding environs is the Hansen Group development of the old Hawke’s Bay Today buildings on the corner of Queen Street East and Karamu Road. This will provide a mix of retail and office accommodation. These developments together with the Council’s desire to encourage inner city living in the often vacant upper levels of our current commercial stock will help to create a busier and more vibrant CBD. Quality developments will not only encourage other quality developments it will also encourage more business to grow and invest in the city centre and encourage inner city living which is important if we want to limit the urban sprawl on the Heretaunga Plains. This activity along with the redevelopment and refurbishment of the Hastings Opera House goes a long way towards the vision of creating a vibrant and safe city centre where people want to live and work and play.

The Council’s vision to revitalise the CBD also encourages the hospitality industry to create different types and styles of bars, cafes and eateries which supports not only the daytime commercial trade but also the evening residential trade. Ten years ago the notion of inner city living was not even a viable idea – now it is very much on its own pathway and the Council must be commended on investing in this revitalisation.

Drive performance by better understanding the numbers

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Hawke’s Bay’s economy is booming.

The region is experiencing growth across a range of sectors and industries, unemployment numbers are dropping, house prices continue to rise and there is an air of business confidence within the region which is encouraging business owners to look to their future and what opportunities these positive developments could bring. One of these opportunities is an increase in business investment which is exciting for both established and developing businesses. With that said, it is important that you have a clear understanding of your business fundamentals so that if opportunity comes knocking, you are in a solid position to best understand the offer on the table. Below we focus on four financial ratios that should be monitored on a monthly basis.

Gross margin

Measured overall and at product level, this formula measures the amount of margin each dollar of sales is contributing toward overhead costs and profit. The result is found by dividing gross profit (subtract cost of goods sold from sales) by sales. A 40% gross margin means that for every $100 of sales, $40 of gross margin is generated to cover all other costs and profit.

Unless you are offering customers a discount, or incurring additional direct costs, your gross margin shouldn’t change whether your sales increase or decrease. We often hear business owners say “I am chasing an increase in sales”, to which we would add “provided you maintain your gross margin”. If sales increase but your gross margin decreases (perhaps as a result of increased commission or discounting), you may be working harder for each dollar of sales but making less in dollar terms.

Measuring how quickly your inventory turns over is a critical measure for many business owners where inventory (or stock) is a significant asset. Slow moving inventory can lead to lower gross margin through discounted selling price, obsolescence, and carrying costs. Understanding your optimum stock levels, particularly how these may trend differently from season to season can help to ensure your costs are measured and justified.

Inventory turnover can be measured in number of days, found by dividing average inventory value by cost of goods sold multiplied by number of days in the reporting period (e.g. 365 if reporting period is one year). A low number of days indicates inventory is selling quickly, however understanding your product mix is important as average inventory days vary widely across product lines.

Cashflow

Money in the bank or positive cashflow is a good indicator that business is going well. Many retail businesses are largely cash based operations, with customers paying for the goods at point of sale, and suppliers requesting payment shortly after delivery. This means that managing and reviewing cashflow is an essential skill for business owners.

Periods of high sale activity and strong cashflow can be followed by lulls which often coincide with GST and tax payment due dates along with fixed costs such as rent and employment expenses.

This is particularly evident over the Christmas trading period for many retailers where high sale volumes during December are followed by significant cash outflows in January.

Forecasting cashflow can help highlight these pinch points and enable you to plan accordingly. There are many tools available to assist business owners with cash forecasting, such as Spotlight and Futrli.

If your business is set to retain its competitive nature during this growth period and stay ahead of the pack it is vital that you plan ahead, and have a good level of financial literacy.

Understanding the numbers is not just for accountants – as a business owner your success depends on your ability to measure the impact of external changes on your business and implement timely changes.

Profitability

There are many measures of profitability, including operating profit, earnings before interest, tax, depreciation, and amortisation, and net profit to name a few. Choosing a consistent measurement to monitor is important as well as an understanding of what is and isn’t included in that measure.

Net profit before tax is a measure of what is left for the owner after overhead costs have been deducted from gross margin. To find the net profit margin divide net profit before tax by sales. A1 2% net profit margin means that for every $100 of sales, $12 of net profit is generated for the owners of the business.

If the owners of a business are not working owners, but are paid a salary, it can be more comparable to deduct their salary cost (or a proxy amount for which they would pay someone to manage the business) from overhead costs before calculating net profit margin. This is called “normalising” so that comparison of profitability can be made with other similar businesses or against industry benchmarks.

Profitability is negatively impacted by increasing overhead costs. Carefully reviewing each overhead item to ensure it is necessary and efficient can be a useful exercise.