by Simon Lord
last updated 30/05/2018
Move to the regions
by Simon Lord
last updated 30/05/2018
Had enough of city life? Had enough of constant traffic, constant noise and the constant struggle to pay the rent? Had enough of the fear that, if you do get a toe on the property ladder, one day the bubble will burst and you’ll end up still paying the mortgage on a property worth less than you paid for it? These are very real concerns for many people, as Cameron and Katie Brooks know only too well. Five years ago, they made a big decision to leave it all behind and move to the country – and they couldn’t be happier.
‘We were working really hard to get ahead in Auckland but, despite having good careers, we just weren’t getting anywhere,’ Cameron recalls. ‘I’d spent 13 years with Caltex, been general manager of Office Products Depot’s Newmarket store and completed an MBA, while Katie was a payroll specialist. We had two kids who were then four and two, so we were trying to juggle work and home. We tried downsizing roles and Katie became a full-time mum but it still wasn’t giving us the balance we wanted. And we’d bought a house just a year before, so we still had to pay the mortgage somehow.’
So Cameron and Katie made a big decision – to use their home to create financial freedom rather than financial constraints. They sold their home for significantly more than they had paid for it and used the money released to buy a new house in the idyllic seaside settlement of Mangawhai, a couple of hours away in Northland. They also bought a new business – a V.I.P. franchise.
‘If we’d sat on our Auckland house for another year the value would have increased even more, but if you go on thinking like that you’ll never leave,’ Cameron says. ‘It was a risk we had to take.’
Sell up or rent out?
According to Philip Morrison of Franchise Accountants, Cameron and Katie were in at the start of a trend that is now well-established. ‘We are seeing more and more clients looking to sell up property in Auckland and move either to the halo regions such as Hamilton or Tauranga, or further afield to start businesses. They see it as an opportunity to improve their financial position overnight, reduce debt and improve their quality of life, and if they want to have their own business then cashing in on their property can make it very affordable.
‘Alternatively, if they are concerned about leaving the Auckland property market altogether, then keeping their property and renting it out can be a good option. They can almost certainly rent something in the regional centres much more cheaply, so they are reducing the burden of debt that the new business needs to support. In turn, that enables them to pay off any borrowings and improve profitability more quickly.’
Cameron Brooks says that he and Katie did consider renting out their property but decided that they wanted to release sufficient capital to own their new business outright, as well as being able to have a much smaller mortgage on their new house. ‘If we’d just rented out our Auckland house we’d still have had to service the mortgage and would have had all the potential problems of dealing with tenants and maintenance. We knew we really wanted to go to Mangawhai so we decided to commit totally to making it work. Something would have to go horribly wrong for us to end up back in Auckland.’
Philip warns that, ‘Whether you choose to sell or rent, there can be tax implications. If you sell a property that you have only recently bought, or that was a rental property, it may attract capital gains tax. If you rent out a property, you need to take care to structure the ownership and any loans in the most tax efficient way, and know what expenses can be claimed when managing remote properties. Everyone’s circumstances are different, so it pays to take proper professional advice to ensure you have the right structures for your own individual needs.’
Where to go?
Deciding to leave the city is one thing – deciding where to go is another matter entirely. Some people will choose to move to areas where they have family or other connections, which can be an important factor in feeling at home in a new community. Lifestyle preferences are also important: if you want to be near good beaches, or good fishing, or skifields or hunting, this needs to play a part, too. As networking is an important factor in growing many businesses, it can be an advantage to know people in the area you are moving to, whether through existing family, children’s activities, sports or hobbies. On the other hand, as many franchisees have found, operating the local café or cleaning business or bookkeeping service can be a great way of getting to know people and making new friends.
Another good reason for selecting a particular area might be that the franchise you are particularly interested in has a good location available. At this very moment there are plenty of franchises which are crying out for franchisees in particular parts of the country, such as Woolgro in Tauranga, Touch Up Guys in the Wellington region or sKids in Dunedin and New Plymouth. There are also stories of franchisees who have already set up with great success in Timaru and Queenstown, Arrowtown and Ashburton, Whitford and South Canterbury. When franchisors say they have opportunities nationwide, they usually mean it.
Finding the right location is always critical to the success of any new business, so if you are flexible about where you go and prepared to take an opportunity when it arises, you could find that it pays off. Be careful that it really is a good location on the right terms, though: as retail specialist Peter Scott points out, no matter how reasonable the rent might seem by Auckland standards, you have to get the right number of people passing the door to make a business profitable (see page 39).
A third great reason to choose any particular part of the country is the growth opportunities it offers. Christchurch is a great example: as Andy Higginson of Westpac explains in this article, with the focus now turning to the reconstruction of the CBD and people flocking back to the city, there’s a flourishing café and bar scene there that bodes well for the future.
But it’s not just Christchurch: other regions are reporting strengthening demand, too, with the ANZ Regional Trends report for June 2016 identifying Gisborne, Bay of Plenty, Hawkes Bay, Southland and Nelson Marlborough as leaders in the quarterly economic activity stakes. Taranaki topped the list in the previous quarter. While there continues to be concern about the impact of variable dairy prices, these figures suggest that ‘Provincial New Zealand is not all about the milk,’ as John Church of Bayleys Commercial puts it. ‘We appear to have developed much more diverse regional economies.’
Big bucks or bright lights?
Regional locations can hold another surprise for business buyers, too – they may not attract the bright lights, but they can bring in the big bucks. ‘In fact, some of the most profitable outlets in many franchise systems are located in the regions rather than the major centres,’ says Daniel Cloete, National Franchise Manager for Westpac.
The key word here is ‘profitable’ rather than ‘highest sales’. Regional centres might have a smaller economy but they can produce better results. There are four main reasons for this:
1. Regional businesses often enjoy far better rent ratios than urban ones. The property market and rates in Auckland mean that many businesses need to have a significant level of sales before they even cover their costs. That’s why so many of the outlets on Queen Street are increasingly open all hours – they can’t afford not to be.
2. Although sales may be lower, so are staffing costs. Rent and staff are the two biggest costs for most businesses, which allows for lower fixed costs and greater profitability. Wages may be lower in the regions, although minimum wage rates are national, and there may be grants available to help people get off long-term unemployment and into paid jobs. All these factors add up.
3. In many sectors, there is less competition both from other franchised brands and from independents. While some independent operators may be excellent, most will be average and none will enjoy the buying and marketing power of a franchise, and the operational support that goes with it.
4. It’s also important to realise that, as Philip Morrison pointed out, because other costs such as housing are lower in most centres, franchisees don’t need to take as much out of the business to cover their everyday living costs. This means they can reduce debt faster and re-invest as required.
All these benefits add up – and when you add in the double disadvantages of city property prices and all-day traffic jams, the appeal of regional businesses becomes obvious.
The franchise advantage
Of course, all these factors apply to non-franchised businesses just as much as franchised ones, but franchises have an additional advantage. No matter what the size of the business, you’ll still get the same level of training and support from the franchisor, because that’s what franchises do. And even if you have a small retail outlet in Whanganui, you’ll only be paying the same for your goods as an outlet five times the size in Sylvia Park, because that’s how franchises work – they pool their buying power. Although, Philip cautions, freight charges can sometimes be an issue unless there are good national deals in place.
Something else Philip mentions is that while many franchises have different models for regional markets, such as smaller footprint or lower capacity stores, some don’t. While a small town such as Tirau might support a far larger café than the resident population would justify because of its massive traffic flow and popularity as a refreshment stop, other locations require more compact (and cheaper) designs.
Of course, some franchises have been designed for smaller markets in the first place, such as Hammer Hardware, which is equally at home in small town New Zealand and suburban areas too – much like Domino’s. And many franchises have started off outside the big cities, such as Podium Podiatry & Footwear, which has proved its model works in places like Mt Maunganui and Whakatane before taking on the urban markets. Dream Doors opened its first outlet in New Zealand in the unlikely location of Wanaka – but it thrived.
Incentives to settle outside Auckland
Of course, regional opportunities aren’t just for those who have got fed up with Auckland – they are for migrants, too. Currently, approximately half of the 10,000 new migrants to New Zealand every year settle in Auckland, placing a further burden upon the city’s infrastructure, whereas many regional centres have housing, transport and opportunities ready and waiting for skilled workers and new entrepreneurs.
Consequently, the Government changed its immigration policies at the end of 2015 to encourage immigrants to settle outside Auckland. Skilled migrants applying for residence with a job offer from outside Auckland saw the points value of a job offer boosted from 10 to 30. To qualify for a Resident Visa requires 100 points. Entrepreneurs planning to set up businesses outside Auckland under the Entrepreneur Work Visa category had points boosted from 20 to 40 points out of a required 120.
One of the aspects that refugees from city life and migrants from other countries alike can benefit from is the assistance available from local councils around the country. Few offer actual financial incentives (‘ratepayer resentment does have a long tail,’ as one local enterprise officer told us) although Upper Hutt is an exception with its rates remission and building grants programme. However, most councils around the country have some sort of economic development strategy and are keen to help new businesses establish themselves and contribute to the local economy – especially if they provide employment.
A typical example is Enterprise North Canterbury, which represents the third-fastest growing district in the South Island. Tom McBrearty explains, ‘Enterprise North Canterbury offers assistance on the market, potential customer base and demographic as well as identifying gaps in the franchise market. We have a highly supportive business network with local economic development agency Enterprise North Canterbury and Waimakariri District Council providing a combined approach to businesses considering coming here. We provide a wrap-around support that assists in finding premises and land in the case of design-build requirements; making contacts and connections; understanding local legislative requirements and providing ongoing support via social media and web-based newsletters.’
Something to be particularly aware of is strategic planning, roading changes and other development. It pays to contact the council or local development agency early to see if you can spot good opportunities.
Cameron and Katie Brooks moved from a city of 1.4 million people to a community of around 2,500. ‘Community’ is the key word here. ‘Leaving family and friends behind was a major concern, of course, but we felt so welcome here straight away,’ Cameron says. ‘The first day we moved into our new house all the neighbours came to say hello, and we made friends quickly and easily.
‘Having children makes it easier: we soon got involved in all sorts of activities: soccer and skateboarding and ballet lessons. There’s a very good school here, too, and it has become a significant part of our lives: once the business was established, Katie was able to move out of it and became a teacher aide.
‘Of course, choosing the right type of business was vital to make it work. V.I.P. is a mobile business, so I was able to service quite a large area while I was getting going, and it enables me to shuffle my schedules around to look after the children if Katie is busy after school hours.
‘After five years here, we haven’t regretted making the move out of Auckland and buying the franchise – not one bit. We’re happier, we’re healthier and we’re giving our children the sort of upbringing we had. Coming to Mangawhai enabled us to put our family first without both having to go out and earn corporate wages to pay the mortgage.’
Not that Cameron has let his standards slip – the lawnmowing franchisee and MBA achieved his two-year sales goal in his first 12 months, and went on to win the Home Services – Best Franchisee title at the Westpac New Zealand Franchise Awards for 2015/16.
‘See? There is life outside Auckland,’ he grins.
BIG QUESTIONS about changing your life
- What do I want to put into and get out of life?
- What does my family need and want for a good lifestyle?
- What would I need to pay to rent or buy a suitable home?
- How much capital could I release from my home to put into the business?
- Does the region have a suitable market for my chosen franchise?
- What is the competition? Is there much opportunity for growth?
- Is there the infrastructure we need for education, sports we enjoy, leisure activities, culture?
- Are there work opportunities for family members if they are not involved in the new business?
- Do we have family members/old friends nearby?
- Would we fit in the local community? How easily do we make new friends?
- Is this a good time for children to change schools?
- What opportunities are there in the new area for lifestyle changes? eg. less time commuting, more time for family or favourite hobbies.
- Is this a region I’ve visited and thought ‘I could live here’?
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