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Looking back at 2016 in New Zealand, the standout in terms of Chinese activity in this country was the unprecedented level of investment capital that was available – looking for something to invest in. But just as glaring was the general failure of Kiwis to take advantage of that investment.

We had many local and overseas Chinese investors eagerly seeking businesses, ideas, or other opportunities in which to invest; but few takers. Or more accurately, few takers that were ready to work with Chinese investors to make it happen.

Standing on the sidelines as a bicultural facilitator of negotiations between kiwi and Chinese businesses, I have observed a few reasons for this.

New Zealanders are nervous about doing business with China. It’s not so much xenophobia, as it is suspicion about intentions and the enforceability of what is agreed. This suspicion comes from not understanding the language, the cultural differences and the way the Chinese do business. For instance, kiwis usually have an understanding of the people they’re doing business with, so they are quick to get down to business. The Chinese on the other hand find it strange that anyone would want to launch into the deal before building a relationship. To the Chinese, kiwi uneasiness and nervousness in dealing with them, and our failure to invest in the relationship first, comes across as showing a lack of trust and a reluctance to do business – a sure way to kill off any business opportunity.

Another major failing comes from the laid-back attitude of many kiwis and our naïve faith that the deal will sell itself. So often, I have seen New Zealand businesses present to my Chinese clients with poorly prepared proposals, key information missing or “assumed”, and unrealistic expectations of the value of the investment – with no hard justification for the value. They forget that any Chinese businessman who has made a truckload of money and has travelled halfway around the world to invest some of that money is likely to be a cautious, experienced and sophisticated investor. He is going to want to see a sophisticated proposal with detailed, justifiable figures, so that he can readily determine that if he invests $XXX he is going to get back $XXX times two. I have seen a number of deals that could (and should) have gone through but didn’t because of poor preparation alone. Such failures do not enhance New Zealand’s reputation as a place to do business.

Admittedly, it is tough for New Zealand enterprises to do business with foreign investors, especially when the large majority of New Zealand companies are small-to-medium-sized enterprises by our own standards, let alone international standards.

Many New Zealand companies that successfully pull off deals with the Chinese are already significant enterprises with the resources to do the job properly. Smaller start-up ventures are usually strapped for cash and don’t have the wherewithal to get advice from quality business consultants that can prepare them for discussions with potential investors. There is some funding available from the likes of the Callaghan Fund for that sort of support, though not as much as is usually needed. The problem is often that new entrepreneurs and even some relatively established operators simply don’t know how to make the deal.

On the intellectual property front, 2016 saw more people looking into IP issues more closely as part of becoming investment/deal ready. Sadly this focus has often been precipitated by the immediate past experience of having their products copied in China, or their brands misappropriated by opportunists, potential distributors or competitors.

This has been, and will continue to be, a significant challenge in doing business with China. New Zealand businesses are becoming smarter at navigating the risks, however, and there have been noticeable improvements in China to protect foreign companies from having their brands blatantly stolen under a Chinese trade mark system that grants ownership rights to the first person to register a trade mark.

In 2016, investment in the food and beverages sector led the way in NZ, reflecting the sound understanding that interest in foodstuffs does not come and go – food and drink is a constant human need. Chinese interest in New Zealand F&B offerings is strong: the Chinese are deeply distrustful of much of what is produced in the food and beverage sector in China and they see New Zealand food having an excellent reputation. Our products offer the promise of premium prices in the home (Chinese) market.

As a rule, these roaming investors are looking for innovation – new things to develop (and develop markets for) where there may be, for a while at least, little or no competition. And therein lies the other interesting development in terms of Chinese business that we are seeing. The Chinese, led by the Government, are striving hard to change their economy from one based on manufacturing of other people’s goods to one based on innovation – making and marketing their own goods. Driving the bus rather than being a passenger. Owning the technology and the brand rather than licensing them in from the US or Europe. For example, companies like Huawei are now pumping out flagship phones that seriously compete against the likes of Apple iPhones and Samsung Galaxy for quality, as opposed to price.

You may also have read of the massive push (again government-driven) to build a world-class football competition in China with the goal of becoming a great footballing nation. Huge sums are being paid to entice top players out of Europe and South America – Argentinean player Carlos Tevez will reportedly earn €110,000 a day to play for one Chinese club. Similar big moves are happening in basketball. China is determined to become powerful on the world stage in a variety of areas and is throwing a lot of money at initiatives to get it there.

It will also be interesting to see how the Chinese government, and as a consequence the Chinese market, reacts to the newly inaugurated US President Donald J Trump. So far Mr Trump’s antagonistic posturing towards China, no doubt for the benefit of blue-collar workers who voted for him, have been met with derision from China and no reluctance to say they’re ready to play “hardball” with the US. This, along with the upheavals in Europe, may well make New Zealand seem like a haven of calm and security for Chinese investors.

So, as we are not expecting to see a slow-up in capital flow to New Zealand any time soon, maybe it’s time for us to get ready for it?

Capital Costs

The capital cost is basically the monetary figure the capital could return if it was put into another investment that had a similar associated risk to it. By ascertaining this figure, the minimum required return on investment of the capital can be deduced. There is an equation to work a weighted-average cost of capital that makes life a bit easier. To use this equation, the cost of debt and cost of equity need to be known. The Weighted-Average Cost of Capital (WACC) equation is as follows:

(Debt Weighting x Cost of Debt) x Marginal Tax Rate + (Equity Weighting x Cost of Equity)

Essentially, owning inventory means there is capital or cash flow tied up in the value of the inventory. As long as the inventory is being housed in the warehouse and not turned into sales, this is lost cash flow that means the company lacks this money to invest elsewhere and reap a return on investment. This lost opportunity has to be costed and is what is represented by capital costs. Typically, capital costs make up the majority of carrying costs (approximately 15% of the inventory value).

Storage Costs

As long as inventory is being stored, there are costs associated. These storage costs are composed of things such as rent or lease expenses, electricity, insurance of the goods, any payable taxes and depreciation of the goods over time. Storage costs are time sensitive whereby the less time inventory is stored, the less it costs the company and the chances of selling inventory are increased, thereby increasing cash-flow and reducing the amount of money tied up in capital.

Service and Handling Costs

Inventory requires insurance and often the greater the amount of inventory, the greater the premium for insurance. This can certainly drive the cost of the inventory up. The inventory stored also needs to be ‘handled’. That is, the inventory needs to be organized, managed, moved and packed – all of which require someone to do it and someone that needs to be compensated for their time. This is an added cost, and should the inventory spend a long time in the warehouse, this cost may increase as constant organizing and relocating when more stock arrives becomes necessary.

Cost of Risks

Inventory being stored in a warehouse is inevitably at risk and this is a cost that is built into the carrying costs of a product. The risks the inventory is subjected to include things such as becoming obsolete (particularly in the electronic and tech industries), expiring before it is able to be sold (such as food and consumables), damage from water or fire and being stolen. These risks are all very real and can easily occur – therefore it is essential to incorporate the cost of them occurring into the carrying costs of the inventory.

It is all too common that the carrying costs are not properly taken into account resulting in an underrepresentation, ultimately causing the company to crumble when it can no longer simply absorb these costs. Therefore, it is essential to build some of these costs into the sale price of the inventory to ensure as far as possible, the company is not exposed to undue risk and the bottom line is preserved.

In this blog I’m going to tell you why looking at just interest rates is the wrong thing to do, help you cut through the jargon lenders will throw at you, and walk you through the 3 simple questions you need to ask to properly evaluate the right deals for your business.

But first, what are you actually comparing?

It is important to realise that when you are evaluating an interest rate, how good a deal you’re getting all depends on the variables that go along with it.

If we’re talking about 10% APR (annual percentage rate), it’s actually not a bad rate. You could expect to pay 5–20% APR for a loan at a major bank depending on your business profile, and upwards of 20% APR with an independent lender if your application is deemed high-risk.

Or maybe that quoted 10% is actually the monthly rate for a short-term loan designed to be used for a few weeks, in which case converting it to a (rather alarming) APR figure is utterly irrelevant.

So what are the questions you should ask yourself?

1. What is the total cost of finance?

The first step in navigating this complexity is simple — forget about the interest rate. The most helpful figure to know is the total cost of finance: in other words, the amount you’ll pay back on top of the principal amount borrowed over the life of the loan.

Many sites include indicative breakdowns and business loan calculators, which are an easy way to get an idea of the total cost. Let’s say you want to borrow £25,000 — using the ‘total cost of finance’ method can produce some surprising results:

£25,000 at 10% for 24 months will cost approximately £2,687 in interest. Meanwhile, the same £25,000 at 15% over a shorter term of 12 months will cost approximately £2,077 in interest — so although 15% might sound more expensive than 10%, the different terms make it £610 cheaper overall in this example.

The point is, the total cost of finance method shows us that comparing interest rates is only helpful with all other things being equal.

Truth is, if you compare only the interest rates advertised, you could waste money, or end up with a deal that isn’t the best fit, but by forecasting loan repayments you will be able to find the best terms for your business.

2. How much will your monthly repayments be?

As well as the total cost of finance, another important metric to use to compare loans is the monthly payment. In our example above, the 15% option is cheapest. However, it comes with a much higher monthly payment as a result of the shorter term — you’d be paying about £2,256 a month on average, compared to £1,154 for the longer-term option.

This demonstrates another crucial element of choosing the right loan for your business. In this example, it would be reasonable to decide to pay £610 more overall in return for almost halving the monthly payment and freeing up £1,102 every month.

The main takeaway from this is that while comparing interest rates will show you which deal could be cheaper overall, this doesn’t necessarily show you which rates would be better for your business, especially if you run a tight cash flow every month. By forecasting loan repayments you can easily see if your monthly repayments are manageable for your business.

3. Why do you need the loan?

Clearly, there’s more to all this than just cost, and the mathematically cheapest loan isn’t always the right choice. Perhaps for your business, the most important thing is a manageable monthly payment, and you’re prepared to accept a bigger total cost of finance in order to get it (and as we saw in the example above, the additional cost might not be that much when compared to the total amount borrowed).

Flexibility can also be key. If your business is seasonal, a fixed monthly payment may not be an appealing prospect, and you might choose a more expensive loan because it has variable monthly payments.

Some other products function more like overdrafts, where you have a pre-agreed limit that you can dip in and out of with weekly or even daily interest calculations — with these, the cost varies hugely depending on how you use it, and therefore the cost aspect of the decision may be secondary to the flexibility of having the funding line there in the first place.

How to choose the best option for your business

If you’re already using cash flow forecasting software like Float, you’re in a good position to understand your affordability. Once you’ve had a look at a few different loan options, you can add the monthly payments to your forecast to see how available cash levels change.

Try inputting a range of costs (as you should with any forecasting), and look at an optimistic, neutral and pessimistic projection of where your business is heading. If some of these loan scenarios leave you close to cash flow negative, think twice. How comfortable you are with your projected future will help you determine how good an option the loan is.

Another simple way to test your intuition is to use the total cost of finance, by asking yourself questions like “am I prepared to pay £2,077 to borrow £25,000 over the next year?”

Bear in mind that the lender will also look at your affordability and factor this into their decision — and their aim is to guarantee you can meet the payments every month. However, what the lender won’t consider is how much cash you have leftover for other projects — it’s up to you to work out how the monthly payment will affect the running of your business, and how to leave enough cash available for other projects.

Final thoughts

It’s clear that the interest rate is just one aspect of a business loan, and it’s important to consider other factors like the total cost and the monthly payment to make your decision. You should also look into more flexible options and consider the lender’s terms carefully. The key point to take away: just because a loan is more expensive overall, it doesn’t mean it’s the wrong choice. Every business is different, and working out what works best for yours comes down to much more than just the headline interest rate.

Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions

At the core of any beer recipe, you will see water, malt, hops and yeast. Each of these ingredients contributes to the flavor to create this well-loved drink. However, the mass expansion of craft beer has increased the demand for hops. Hops are the dried flowers that give beer its flavor. A craft beer can require more than four to six times the amount of hops than a conventionally brewed beer.

However, to brew beer with this fashionable craft taste, it may soon be served with a significant cost. Hop farmers may have difficulty keeping up with the high demand for hops. For some craft brewers, they have seen the price of hops rise 50% over the past two years. As a consequence, these craft beers may become increasingly more expensive as this key ingredient runs short and at a higher cost.

Most brewers have locked in contracts for several years with hop growers. These contracts help plan the brewing process and allow for inventory management. Contracts protect brewers from an abrupt price increase, but unfortunately, the future supply is not guaranteed. This supply risk poses several difficulties to breweries. In some cases, a brewery may have a long-term contract with a hop farmer for a specific amount of hops for their inventory. Yet, due to such high demand for hops, a farmer might only be able to give the brewer half of the requested order. Other brewers have not been able to establish these long-term contracts and are at the whim of the hop farmers’ supply. As a result, craft brewers may have to stretch their creativity even farther and brew beers around hop availability.

In addition, if a type of craft beer gains popularity quickly, and the brewer has underestimated their demand, it may be very difficult to acquire hops. The scarce supply may worsen as large brewing companies join the game. They either buy up smaller craft breweries and increase the production of the popular brews or develop their own new recipes as well. These well-recognized and big beer-brewing companies can make the hops supply more difficult for smaller breweries.

It should be noted, for the brewer’s inventory, that hops are perishable. However, at the current brewing rate, it seems they can’t get their hands on them fast enough. The demand, alongside high prices, will hopefully encourage other farmers to enter the market and grow hops. It can be very profitable for a farmer to grow and supply hops if it is feasible for their farm.

Until then, the unabated race for hops and craft beer creations continues and will be a huge influencing factor in the supply and demand of new-age beer.

If you’ve ever sat down and gone through your business financials with your accountant, chances are the phrase “Debtor Days” or “Day Sales Outstanding” would have come up – it’s a common metric for gauging the health of a business.

What might not have been clear though is the potential opportunity that sits behind the Debtor Days number in your financial reports.

The answer is…

…cold…

…hard…

…cash.

“On average a one day reduction in debtor days was worth an additional $18,000 in the bank for your average SMB*”

*results from a recent Debtor Daddy study of 500+ SMB’s

If you’re wondering where to find the cash to fund the new office, new van or simply cover your payroll then your overdue invoices (aka debtors) might be the best place to start!

Here’s how it works

Imagine if every day of the year you made $1000. By the end of the year you will have earned $365,000 in sales. So each day is effectively worth $1000 to you. Put another way, each debtor day is worth $1,000 to you.

So if your Debtor Days are sitting at 35 days then that’s the equivalent of $35,000 of your money sitting in other people’s bank accounts.

Reduce your Debtor Days by 15 days and that’s $15,000 back in your bank account.

This might not seem that exciting when the numbers are small. But for many of businesses we work with a single debtor day is worth between $18,000 and $100,000. For much larger businesses a single debtor day could be worth over $1 million dollars!

“In less than two months a Debtor Daddy user in the creative industry reduced their Debtor Days by 29 days, increasing their bank balance by over $200k.”

The point is, regardless of your business size there’s money in your receivables. And it can be obtained by putting the right controls in place to collect what you’re due faster.

Curious to know what a Debtor Day is worth to you? Take Debtor Daddy for a spin. Or if you’re an accountant or business advisor sign up to RADAR and find out how much cash a debtor day is worth for your clients.

To do that we’re enlisting the help of thousands of accountants worldwide who share our passion for improving cash flow and making small businesses more successful.

Why?

Because debtors are one of those problems that too many businesses choose to avoid. Check out these stats from some recent research by Debtor Daddy summarising the debtors situation for over 500 small businesses debtors:

• 70% had more than 50% of invoices overdue
• 33% had more than 50% aged +60 days
• 41% had more than $50k overdue
• Average debtor days: 33 days
• The trouble is that in a small business, the business owner or office manager is head-down working on the day-to-day. Debtors often get put the the bottom of the pile, it’s too hard, it’s too time consuming, and owners lack the skills and tools to get it done right.

This is where you come in.

Step 1: Highlight the problem (or opportunity)

Our first step is to arm you the accountant with the information you need to spell out the extent of the problem in black and red. Plus you’ll also be able to hold your client accountable by monitoring the debtors situation over time.

How is this possible without logging in to each client’s accounting software every month to run reports?

The answer is Debtor Radar, our new debtor reporting tool that monitors all your clients’ debtors situations, sending you (or your client managers) a detailed monthly report of who’s at risk. Straight to your inbox, no work required.

Step 2: Delight your client

Armed with these key stats around debtors, it’s as simple as picking up the phone or firing off a quick email to your client:

“Hey Samantha, I noticed your debtors have crept up since last month and I can see you’ve got more than 40% ($134k) that’s more than 60 days overdue. Just checking if everything is under control or would you like some help?”

Now if you’re Samantha, head down, working in the business, it’s super nice to know your accountant has got your back. Especially if it’s been a few months of not hearing from him.

Debtor Radar becomes your perfect excuse for staying in touch and positioning yourself as first point of contact when it comes to the health of their business.

Step 3: Refer them to a specialist

As an accountant you’re the GP for your client’s financial health but from time to time it pays to engage a specialist for the more challenging complaints. Debtors are a perfect example, as they usually require a concerted effort to get them under control… starting with the hardest part – changing the behaviour of your client!

At Debtor Daddy we speak to dozens of businesses every week, helping them systemise and automate away the pain of managing debtors, so their cash collection runs like clockwork – every month.

Don’t be fooled into thinking that solving late payment problems is as simple as turning on email reminders. That’s table stakes and our data shows that only solves part of the problem. If you really want to solve debtors for good then a more holistic approach is required, involving education plus dedicated debtor management tools that make the whole job from reminders to phone calls to letters easy (and maybe even fun).

If you’re an accountant that wants to help us tackle the age-old problem of aged receivables and improve the health and cash flow of small business everywhere then register for a Debtor Radar demonstration today.

Be part of the solution for stronger, healthier businesses.

From veterans to young guns

At one end of the spectrum, you might have a handful of veterans from the Silent Generation who continue to work long past the age of retirement. At the other, your newly appointed Gen Zeds are bringing a fresh wave of innovative and creative thinking to your business.

And in between, you’ve got Baby Boomers, Gen Xers, and Millennials, all working together.

If you’ve got the balance right, your industry veterans are working in tandem with your newcomers along with more experienced workers in an environment where everyone is constantly learning, and your customers are getting the very best experience.

Employee Benefits: One Size Does Not Fit All

With this range of generational ages, when it comes to providing employee benefits for your workforce, it’s easy to see why a one-size fits all approach doesn’t work.

That’s why it’s important to understand your employees’ motivations. And this largely depends on their life stage.

Employee Financial Literacy Education: Custom For Life Stage

In terms of providing a financial literacy program, this generational divide is more important still. You need to remember different age groups in the workplace are going to be motivated by different things. While most of your employees are going to welcome the opportunity to become better informed on financial topics, if you try to provide blanket benefits, they will fall short of the mark.

For instance, what Gen Zeds and Gen Ys want to know about is a whole lot different than the needs of your older workers.

Last year, PwC’s 2016 Employee Financial Wellness Survey found that Millennials were in worse shape financially than their older counterparts.

According to the report, 64% of Millennials are stressed about their finances. Almost half of them (46%) find it difficult to meet their household expenses on time each month. And 37% say that issues with the personal finances are a distraction at work.

For Gen Zed or Millennial employees, student debt is a huge concern. It’s far more pertinent to them to learn how to manage it than learning about retirement planning at this stage of their lives. On the other hand, saving for a comfortable retirement is a big priority for Baby Boomers and Gen Xers.

Work with an established partner

As an employer, it makes good business sense to provide access to financial education. Read our blog on 5 big reasons to offer a financial wellness program, for more on this.

But don’t do financial literacy education alone. The smart approach is to work with established partners in this area. Then introduce advice services and programs that offer financial education and support to your employees, customised by age bracket and life stages.

A good financial literacy program goes well beyond simply explaining an employee benefits package. Rather, it teaches good financial behaviours and addresses the key financial decisions that your workers face at different times in their lives.

As an example, financial literacy content for different age brackets could include:

Gen Zeds and Millennials

• Setting financial goals
• How to manage student debt
• Individual budgeting and credit education
• Making the most of Employee Benefits
• Coaching on preparing for a financially successful retirement

Millennials and Gen Xers

• Understanding mortgage lenders and achieving homeownership
• Getting the right insurance for your specific circumstances
• Making the most of Employee Benefits
• Investment education and advice
• Money coaching on wealth management
• Help on tax minimisation
• How to prepare for a financially successful retirement
• Post-retirement financial education

Gen Xers, Baby Boomers, and Silent Generation

• Continuing retirement planning education
• Money coaching on wealth management
• Investment education and advice
• Help on tax minimisation
• Post-retirement financial education
• These days, you should treat improving financial wellness as part of your duty of care to your employees.
• But it’s not about giving the same message around superannuation and retirement to people who have just started out in the workforce as you give to older employees nearing retirement age.
• By listening to your people, and understanding their needs, you can tailor your financial wellness program to precisely meet the needs of your multigenerational workforce.