Is Your NZ Business Actually Doing Well? Here's How You Tell

Not a month goes by where a business owner doesn't ask us, "Am I doing well?"

So I want to answer that properly, because most people are comparing themselves to the wrong things, or not looking at the numbers at all.

We look at P&Ls and balance sheets every single day.

And that gives us a pretty wide lens across a huge range of businesses, sizes and industries.

Business owners themselves rarely get that view.

When we tell a business owner "you're doing alright," the next question is always "how do you know that?"

Here's what we're actually looking at.

The basics that most people get wrong
If you can pay your suppliers on time, that's a big tick.

That might sounds pretty basic, but a lot of businesses can't do it.

And I don't mean "we pay everyone on the 20th of the month because that's what we do."

If your supplier terms are 7 days, 14 days, or the 20th of the following month, you pay on those terms.

Same with IRD. The tax debt owed to IRD nationally is heading toward a genuinely eye-watering number, and we'll find out the official figure around October when it's confirmed for the year ending June.

If you're falling behind, don't bury your head in the sand.

Get in touch with IRD, get into an installment arrangement, be proactive about it.

And don't neglect your PAYE.

If you're struggling to stay on top of payroll, outsource it to a payroll intermediary.

It takes it off your plate entirely, and when the inevitable question comes up about sick leave or holiday pay, you've got a specialist to answer it instead of it draining your energy.

Can you pay yourself consistently?
The next test is whether you can pay yourself, and pay yourself consistently.

Even better if you can slowly increase that amount over time. That's a real sign you're doing better than a lot of business owners in New Zealand.

I looked at a P&L recently where the shareholder salary (the amount the owner allocated themselves each year) went: • • • Year 1, $25,000.
• Year 2, a bit more.
• Year 3, $75,000.
• Year 4, zero.

That business is broken.

When we dug into it, they had cash flow problems, outstanding GST, and were effectively using the "bank of IRD" to stay afloat. That inconsistency in personal drawings almost always bleeds into inconsistency in the business, because the cash gets drained trying to plug the gap.

We also see it work the other way, during good years, some business owners are capped at exactly $180,000 (the top tax bracket) year after year for convenience, when really that's just delaying paying yourself properly.

If the business is profitable, get the fruits of your labour.

Stop assuming the good times will last
There's been a lot of "fake money" fuelling recent boom periods, a lot of it printed.

When times are good, it's tempting to think it's the new normal.

It isn't.

Take the cream off the top, ring-fence some for tax, and keep your personal life at a normal baseline, because when things contract, it's your business that should flex not your mortgage or your house.

I've seen this exact pattern:
• Sales drop 10%
• House prices fall 20%

But the overseas holiday still happens, fuel still goes in the Ranger, and the jet ski still needs to be towed.

Something has to give, and for most people it's the business that absorbs all the pressure.

One example that sticks with me is a business owner considering liquidation had two vehicles worth $70,000 combined, both on debt, in a business that was struggling.

When I asked why they needed both, the answer was always "I need it" but if you're not doing well, you need to seriously question whether you need a $50,000 vehicle at all.

And on GST, claiming it back isn't "getting money." It's reducing an expense against income you're supposed to be earning.

You're still spending the money. I've seen business owners rush to buy $50,000 of equipment and vehicles purely focused on getting the GST back, without stopping to think about whether they can actually afford the asset in the first place.

The non-financial signs
A few things I look for that have nothing to do with the numbers:

• Ideal clients refer you work:  Anyone can get word of mouth. The real sign is when the right clients are sending you the right kind of work.

• You can say no: If you can't remember the last time you turned down a job, you're probably not being as selective as you think.

• You can put your prices up and people still pay: Money exchanges hands when value exceeds price. If you can raise your prices and retain clients, you're clearly delivering more value than the perceived cost.

One of my favourite things I heard recently from a client: "Every time I've sent an email, I've got work." That's gold.

It means they've figured out how to craft an offer their audience actually wants to buy. That's genuinely what most of business comes down to.

You know your database, they know you, and you're offering them something valuable enough that they'll pay for it.

New Zealanders generally are weak on sales training, and one of the clearest examples is pricing.

In hospitality specifically, wages and food costs go up every year with the general economy so your menu prices should be reviewed and adjusted regularly.

Too many businesses leave prices untouched year after year and just leave money on the table.

I've also seen it play out with invoicing.

A business owner sent a five-figure invoice for the first time, nervous about the reaction, and the client came back and said they'd actually undercharged. The ceiling on what you can charge is usually higher than you think, particularly once you understand the value of the problem you're solving for the other person.

"Boring" is the goal
If your business feels boring, repeatable and predictable, and money is still dropping out the bottom... you've won.

Most business owners fall into the trap of "this used to be simpler, so I need to do something new" chasing shiny objects like a property development instead of squeezing more out of what's already working.

Business shouldn't be easy, but it doesn't need to be constant fire-fighting either.

If it's not challenging at all, you've probably stopped growing.

Some numbers worth knowing
When Labour introduced the $180,000 top tax rate, it was projected to capture 2% of earners.

It's now sitting at 3.7%. The top 1% income threshold in New Zealand has moved from around $250,000 to roughly $278,000–$280,000, and around 20% of the working population now earns over $100,000.

If you're telling yourself you're not in business "for the money" fine! but ask yourself honestly... would you like to pay yourself more? Everyone says yes. There's nothing wrong with acknowledging that.

Know your gross profit margin. Actually know it.
If I ask a business owner what their gross profit margin is as a percentage, and the answer is "I think it's around…" you don't know. That's a guess.

Every business owner should be able to state their margin, track it over time, and understand why it's moving.

If it's holding steady, look for ways to improve it. If it's declining, you need to find out why and fix it urgently, because left unchecked it eventually becomes a business that can't pay its bills.

If you're not reading your P&L regularly, that's a habit worth building because the businesses that don't do well are, more often than not, the ones guessing rather than checking.

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This article is based on insights from the Next Advisory podcast, where Luke and Phil help New Zealand business owners navigate economic challenges and build better businesses. Visit nextadvisory.nz to find out how we can help you.

Checkout more of our blog content at https://nextadvisory.nz/podca