Terry McLaughlin says our SMEs need to contribute more to our economic growth. You agree?

By Terry McLaughlin*

Beach, barbecue, boat and bach, it’s the Kiwi dream and for those who have achieved it through running a small to medium sized business (SME), then it may seem enough.

But lifting the bar of ambition among New Zealand business people may be one of the major factors stifling this country’s economic growth.

New Zealand has an overwhelming culture of small business.

A recent report by the Ministry of Economic Development (MED) found that 90% of New Zealand enterprises employ five or fewer people and 69% are one-person organisations.

The report also showed that SMEs, particularly those with fewer than five employees, are more likely to remain the same size over time than larger firms.

Yes, small businesses are a vital part of any country’s culture and economy – SMEs account for 31% of all employees in New Zealand. The difference is that many other countries can afford to have large numbers of small businesses because they have a lot of big businesses too.

The majority of major companies in New Zealand are owned by companies from Australia or elsewhere – so we simply can’t afford for so many of our businesses to stay in the SME sector.

The government is focused on growing the economy, but they can’t fix it on their own.

SMEs accounted for only five per cent of high growth enterprises in 2010. When measured by turnover New Zealand is near the bottom of the Organisation for Economic Co-operation and Development (OECD) for the percentage of high growth enterprises.

Put bluntly, more New Zealand SME owners need to break out of the beach, barbecue, boat and bach mentality, get braver and start to think outside the box.

The onus really is on our SMEs to step up to the plate and contribute more to the country’s economic growth.

This might seem an alarming prospect in the current economic climate with most organisations operating prudent, conservative strategies.

But the economic situation will improve and there’s a danger many businesses will stay stuck in the same rut - and the prediction of slow growth will become a self-fulfilling prophecy.

The MED report also shows that very small businesses are less likely to survive than large ones – almost half of SMEs are less than six years old, with very few over 20 years old.

That certainly suggests that continuing to live that Kiwi dream, long term, and helping your family, employees and others in your community to live it too, means that you have to look towards growth. Interestingly, the MED statistics also show that worker turnover rates decrease as a firm’s size increases, with stability lowest in firms with one to five employees.

It isn’t easy to step out of your comfort zone but certainly many companies that have successfully achieved growth have found that the support of a Chartered Accountant (CA) invaluable in the process of growing their businesses.

While the perception for many SME business owners is that an accountant is simply a tactical tax advisor and form filler, a CA, who has undergone seven years of intensive training, will provide an informed perspective and extensive advice and guidance in many areas of a business.

Gone are the days of taking a shoe box into your accountant. CA’s have the training and experience that enable them to see opportunities within the figures, and they can provide the confidence many businesses peruse options for growth and development.

A well-documented example of this the New Zealand-based company Trilogy, founded in 2002 by sisters Catherine de Groot and Sarah Gibbs, herself a highly experienced CA.

From the outset they used the advice and information provided by their CA to inform all their decisions as they grew the company – which they sold for $20m in 2010.

Another good example is Kokako, which started as an Auckland café and is now a leading sustainability brand in the food and coffee sector.

Working with a CA helped managing director Mike Murphy to identify the opportunities and make the sound business decisions which have enabled him to both grow Kokako from a small coffee cart to a thriving business.

It also enabled him to make brave choices during the recession – this included selling the café in 2010 to provide capital to successfully grow the organic coffee and food wholesaling side of the business.

Having achieved those aims, CA guidance also helped to source shareholder support enabling Kokako to return to the café scene with a new café/roastery in Grey Lynn.

Many people, like these, are pursuing not just a dream but a passion – but most will not have in-depth understanding of business or financial management. With the right advice and guidance you can fulfil that passion and take it to a wider audience.

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By Terry McLaughlin is the chief executive of the New Zealand Insitute of Chartered Accountants.