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The top four problems with doing business in Auckland

The top four problems with doing business in Auckland
New Zealand’s business unfriendly city

March is the month of traffic gridlock in Auckland and is one more reminder that the barriers and frustrations to doing business in New Zealand’s biggest city are mounting up and show no sign of easing.

Operations and head accountant at Auckland-based accounting and business advisory firm, NexGen Group, Alister Siew, says there are at least four obstacles that are contributing to local small and medium business stagnation or failure.

“We all know about the traffic woes in Auckland. But we have additional burdens that are making it untenable for small businesses. I have to say Auckland is not a business friendly city.”

These are:

1. Traffic problems which cause delays, late deliveries and higher transport costs;
2. Bank reluctance to fund small businesses because they make enough profit from property;
3. A small population, by world standards, coupled to unsustainable competition;
4. The increasing cost of doing businesses in terms of wages, fuel prices and taxes.

Lack of bank support

Siew says most small business owners, “can only borrow against their mortgage because banks just won’t back a small business on its own merits – we see it every day.

He says he is not surprised by the banks’ reluctance because small businesses do have a high failure rate in Auckland, due to factors such as costs, population and lack of growth potential.

“Why back business when you have a sure thing with property? I do believe, however, that the banks could and should be doing more to help small businesses. There are lenders who offer unsecured lending, but the debt has high interest rates. Most of our clients borrow to fund their businesses off their houses and properties – it’s not healthy, but it’s cheaper money.”

Traffic delays and costs

Siew says small businesses are being forced out of business by factors such as late deliveries, delays, a slack courier service and unproductive time spent in motor vehicles at all times of the day.

“Freight and courier services are shocking. Most customer problems are caused by freight and courier issues. Added to that, if you attend a meeting in Auckland at any hour of the day, it means at least three hours out of your day – that’s just for one meeting; it rips the guts out of your day. Public transport is, to some extent, an option but it is expensive; catching the bus or ferry is not a cheap.”

Siew says better appointment planning and greater use of the telephone and online meeting platforms like Skype can help, but personal relationships and face-to-face interaction is an important way of doing business in New Zealand.

Low population versus competition

“I was in Melbourne recently and it was easy to notice that all the coffee shops, for example, were jam packed, even the ones hidden away in the nooks and crannies. Walk into a coffee shop in Newmarket and it’s less than half full, if you’re lucky.

“I am concerned by the closure rate of retail shops along Broadway in Newmarket. It’s alarming,” says Siew.

He says one solution for SMEs would be to increase their repertoire of products and services, and to cross-sell and up-sell those additional products and services to their existing customers, but it’s important to really look after existing customers.

“It is important to prepare adequate financial forecasting before going ahead in a business. Just because something like a health coffee shop works in Australia, doesn’t mean it will here – we just don't have the population.”

Unreasonable costs

Siew says that the Labour Government, Auckland City Council, media and trade unions complain about how poor New Zealand wage levels are compared to Australia, but the reality is that the productivity levels here – well below other OECD countries – does nothing to justify higher earnings.

“Productivity levels haven’t improved much, but we’re still getting rising fuel prices and increases to the minimum wage, which pushes up salaries and expectations across the board. They say there’s no inflation, but anybody who buys groceries knows that nonsense; it’s a catch 22 situation.

“And now we have a mayoral candidate in Phil Goff who is determined to increase rates if he wins another term. We just can’t win.”

Siew says one solution for SMEs is to reduce variable costs, for example wages, by automating some functions, while increasing top-line revenue through up-selling and cross-selling.

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