Demand plus ‘no delivery’ equals insolvency

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What a couple of months it has been – record numbers of company liquidations and widespread insolvency events across normally stable and solid industries have made for a very turbulent and troubling time in the local business landscape.

On the outside, doing business seems to be a fairly easy equation: find something that people want or need, source it, market it and provide it for an acceptable price.

What we have seen is components of the above drop out so the whole equation no longer computes. The main challenge for most businesses is generating demand; Once that is in place, the rest is fairly elementary: find the capacity/goods and get them to who bought them.

But what if you can’t source the goods? How can you provide what you can’t get?

I have seen clients walk away from well-established, multi-million dollar per year turnover businesses because of two main factors: lack of staff and lack of materials.

These are businesses experiencing demand that, as a new business, they could have only previously dreamed about, and they have the goods in the yard waiting to be deployed, but no one to deliver them and no one to set them up or install them.

Two business types that appear to be particularly affected in the local market are the scaffolding and concreting industries. They have the scaffolding and they have the concrete but they cannot find the right staff, for love nor money, to deliver to their customers.

Upon further research I have found an exodus of qualified staff in these industries is occurring, with the majority heading to Australia, often to take up well-paid positions – after two years of travel restrictions and inability to earn money in these industries, this has proved to be irresistible for many.

My advice to any business that is having issues with huge demand but limited supply is simple: choose your clients carefully – if you are going to put your eggs in only a few baskets make sure those baskets are rock solid and have a real future.

Credit check them using Centrix or a similar service, have solid and up-to-date best-practice terms of trade, become a secured creditor and have a credit monitor on them so if there are any bumps in the road then it won’t send your company into a tree.

Also keep your prices in-line with your cost increases; If your fuel bill has gone up by 30% then why haven’t your delivery or your installation rates gone up at the same rate?

If it raises your cost it decreases your profits, and at the end of the day your business lives or dies from profit, not turnover.

As my father (and business inspiration) has always told me, “Turnover is vanity, profit is sanity.”

Just a thought.

Related: Know when it is time to quit

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Nick Kerr
Nick Kerr
Nick Kerr is the director of IPI Group Limited. He can be reached on 021 876 527 and nick@nzipi.com.

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