Not every prospective retailer will need to get the banks involved with their store, but for most of us, a business loan or overdraft will be part of life. My most burning questions with regards to Scribble Kitty’s finances are:
- How much capital do I need to start thinking about opening a bricks and mortar store?
- What kinds of considerations should I be making when taking on business debt?
- How soon does Scribble Kitty need to become profitable?
Westpac’s national manager small business market segment and third party management Irene Page says the first question retailers should consider with regards to debt is, “Do I lease or purchase my location, and why?”
If the retailer has experience with setting up and running stores, Page says, their options are very different to those of a green businessperson with big dreams and little capital. Matching their expectations with the locality of their store is key.
The nature of Page’s question reflects the ability of modern banks to offer advice and support for budding businesspeople. It’s not just “take the money and run” for new retailers - Page says the bank will want to know about your business plan; your experience managing a business; your level of equity and your expected income in order to put together a product to assist you.
Asked when the bank should become involved in the process of setting up a retail store, Page says: “At the first moment you are considering opening a store.”
“We want to make sure you have all your banking needs sorted which includes financing the lease or purchase of that store.”
Typically, retailers get in touch with the bank after they’ve found their location and determined the costs involved.
“Some people have another job or another income and they can offset it so they don’t need assistance.”
Other common practices include taking out a loan to purchase a location or business, or signing up for an overdraft to cover costs while the business gets going. Page says private homes are most often used as collateral in situations where people are buying firms with commercial property attached, but don’t necessarily have to become involved.
It also pays to keep an eye on New Zealand’s economic outlook when setting up a business. Page says the current low-interest environment and rising debt will, over time, make consumers more vulnerable to a loss of disposable income caused by shocks like rising petrol costs or interest rates.
“You need to recognise you may have fluctuations with luxury products. If you’re reliant on these, you’re more vulnerable, therefore diversification is smart because it gets you more than one one type of customer.”
Page says Westpac’s ability to advise and assist customers extends well beyond financial matters. She has some advice for new retailers: think about what motivates customers to visit your store.
“The way they connect with their customers is really critical,” she says. “The key is, how do you bring people in?”
Many SMEs in New Zealand still do not have much of a digital presence, Page says, and this has become crucial for encouraging foot traffic. Owners of small businesses can be technophobes, she says, but this is no longer acceptable, especially for those with a youthful customer base.
“In this day and age, you need to connect more with people you want to drive into your shop,” Page says. “I’m constantly amazed at how many [SMEs] don’t do digital.”
Page also recommends that those about to set up a retail store develop a clear understanding of what differentiates their offering from the competition.
“Who else is doing what you do, and how are you better?” she asks. “If the attraction is comics or cats, how does everyone know that?”
The four main questions banks will ask of soon-to-be retailers
- Do you have a business plan?
- What’s supporting your income?
- How much money do you need?
- Why do you need it?
This story originally appeared in NZ Retail magazine issue 745 August/September 2016