Financial Advice

by Westpac New Zealand

last updated 11/12/2020


Doing Business In The New Normal

by Westpac New Zealand

last updated 11/12/2020


Mike Haigh of Westpac on funding and doing business in uncertain times

Businesses of all shapes and sizes, across every industry, are still adjusting to the ‘new normal’ in the face of the Covid-19 pandemic. No-one knows if there is more to come or when the world will return to previous levels of economic activity, but, as always, uncertainty presents both challenges and opportunities.

Here are a few thoughts to help franchisors, franchisees and franchise buyers navigate through these interesting times.

Mike Haigh, Westpac

Are the banks still lending?

Interest rates are at record lows – but are the banks still lending? The answer is ‘yes’. However, they are more cautious, and more willing to lend to some industries than others. Buying a franchise business can actually improve your chances of getting lending approved, especially if you are buying into a recognised brand with a history of viability throughout the economic cycles.

One thing is for sure: it is more important than ever to find a bank that understands you, your proposed business, and your future plans. Choosing a bank that has a strong understanding of the franchise model can significantly improve the chances of getting a loan approved.

The unemployment opportunity

After many years of low unemployment, the impact of closed borders on certain industries means that there are more people looking for both employment and business opportunities. For example, there are a lot of well-trained people from the airline and tourism industry who have transferable skills.

A franchise can offer an excellent opportunity to go into business for yourself for the first time, offering training, support and systems in areas where you may not be confident and enabling you to put your efforts into a business model that has been proven to work.

Rising unemployment also means that there will be a much higher number of people applying for jobs, and a higher quality of candidates. If your franchise employs staff, this is good news – the lack of good candidates has held back the growth of many businesses over the last few years.

Business location

People increasingly working from home has meant a sharp increase in commercial growth in the suburbs and regions. Some suburban hospitality businesses have reported double digit growth. This shift in spending is on track to become the ‘new norm’ for many.

As the balance changes, more locations may be available to new businesses in key areas. Prospective tenants are in a strong position to negotiate better terms with landlords in the current market. Aspects such as contribution towards fit-out, reduced rental bonds, and no rent periods during the start-up phase, may all be on the table. 

Cash is king

Right now, cash is crucial to business survival. After the first lockdown, most business owners will know their income and expenses better than ever before. That’s great – being able to forecast accurately and understand when your shortfalls might arise, and how much they will be, can mean the difference between paying creditors on time or falling behind. Understanding your cash cycle can help you put in place the right working capital facility to get you through those quiet periods without having to keep going to the bank for help.

Some businesses actually have significant cash reserves right now. How best to utilise this cash when interest rates are at an all-time low? Keeping cash in an overdraft or revolving facility can be a good option to reduce interest charges whilst leaving the cash available for unforeseen events or further lockdowns. 

To market or not to market 

When sales are slowing, focus inevitability shifts to cutting costs. Reducing marketing spend may seem a sensible move but can prolong your return to pre-Covid-19 trading levels. 

Marketing wisdom says that there are two times when it is essential to spend on marketing: i) when the business is growing, and ii) in a downturn. While the second point might seem counter-intuitive, marketing space can be cheaper when other businesses are not spending and there is a surplus of space available. Marketing in this environment indicates that you are still in business, conveys confidence and can be a good opportunity to get your brand better known.

Also, we have recently seen a lot of discounting and other newly-minted delivery strategies to try and help improve sales. This may seem like the right thing to do but it is important to check your numbers first. If there is not enough gross profit left to cover operating costs, this can mean the business is doing a lot of work with no benefit to the bottom line.    

Contactless – cost versus benefit 

There has been a sharp increase in the use of contactless payment technology over the past few months. Many banks offered free contactless debit transactions for a period to their smaller SME customers; as a result, consumers have come to expect the speed and convenience of this payment option at their local café or restaurant. Some merchants have indicated they will switch this technology off when their free period ends. 

However, costs are starting to come down to support consumer demand. Mastercard and Visa have recently lowered their interchange rates on contactless payments, which means that the rates on both Debit and Credit contactless payments have dropped significantly. Merchants on an Interchange Plus pricing model should get this benefit immediately – speak to your bank to learn more about switching to Interchange Plus or getting better rates on your contactless payments. 

Get in touch

While it is important to pay heed to the risks inherent in an economic downturn, keeping your finger on the pulse and ensuring you have the right financial advice could help you to capitalise on some golden opportunities.

Westpac Franchise Managers around New Zealand have been busy working with customers on both an individual and network basis. The availability of system-wide data can make franchised businesses a very attractive and supportive option. Don’t hesitate to contact your local specialist franchise banker for assistance.   

The information contained in this article is intended as a guide only and is not intended as an exhaustive list of matters to be considered. Persons entering into franchise agreements should seek their own professional legal, accounting and other advice.

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