Businesses are struggling in these uncertain times and insolvency is a reality for many chartered accountants’ clients. John Fisk FCA, partner at PwC New Zealand and chair of the Restructuring, Insolvency and Turnaround Association of NZ, likens it to watching “a slow-motion car crash”.

“These things don’t just happen overnight; they’ve been evolving over a period of time. A business generally goes through growth cycles, then cycles of decline and the key to survival is to be able to pick when you’re starting to decline and pull out of it and go on to growth again.”

In episode 2 of The Acuity Podcast, Fisk says, “It’s something the All Blacks do to stay world champions. Before they start to lose significance, they’re already planning what the next new thing is they need to be doing.”

Fisk says many businesses that fail lack the ability to move with the times or pivot to what their customers are looking for. “And when COVID came along, you had to put your foot hard on the accelerator to change quickly because the change that’s been imposed on you is so fast.

“In New Zealand, we had the example of a men’s clothing shop in Kawerau, which is a forestry area. The business started in the ’60s as a suit shop.

“No one in Kawerau buys a suit anymore, unless it’s for a funeral. So the business has reinvented itself every few years with product that customers want.”

Picture: John Fisk FCA.

“We were dealing with businesses – sometimes quite large businesses – that found themselves in financial difficulty very quickly.”

Businesses lacking resilience

According to Fisk, a big problem lies in a lot of small businesses being grossly undercapitalised.

“They don’t have a lot of resilience and we saw that when COVID hit. We were dealing with businesses – sometimes quite large businesses – that found themselves in financial difficulty very quickly.

“A lot of those businesses have survived in the past 10 years because house prices have been going up and businesses might have quite a bit of equity in a house, which is usually the security provided to support its lending. So if the business gets into trouble, you end up selling the house to repay the debt.

“I’m concerned about the future, particularly if house prices start going down because that makes those small businesses even more vulnerable.”

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