Surviving and Growing in a Slow Economy

New Zealand's economy has been under real pressure. Rising interest rates, imported inflation, a wave of company liquidations, and squeezed household spending have combined to make life hard for business owners and property investors alike.

In our recent webinar, I sat down with my colleague Anthony Strevens to talk through what's actually happening in the market right now and, more importantly, what business owners can do about it. This article is a summary of the key points we covered.

You can watch the full recording using this link, or at the end of this article.

Key Takeaways

• The numbers are sobering. Over 3,000 companies were placed into liquidation in the year to March 2026, with construction, hospitality, and other services the hardest hit sectors.
• Rising costs don't reverse. Once your input costs, insurance, rates, or wages go up, they very rarely come back down, so pricing has to keep pace.
• Cashflow visibility is everything. A simple weekly cashflow forecast beats a set of annual accounts you only read months later.
• AI is a tool, not a threat. But the real risk is a competitor using it better than you.
• Winning new clients is hard in a tight market. Retention, referrals, and reliability matter more than ever.
• Hiring mistakes are expensive. A bad hire can cost 1-3 times the annual salary.
• Your bank is a business partner. Being upfront and giving early warning gets you a "yes"; surprises get you a decline.
• Act early on any problem. Whether it's with IRD, the bank, staffing, or costs, every option shrinks the longer you wait.

Why is New Zealand's economy under so much pressure right now?

We opened the webinar by looking at what's driving the current squeeze.

The Reserve Bank recently increased the OCR, at the same time as inflation sat at 3.9% (much of it imported, largely tied to the Middle East conflict and its effect on oil and freight prices). That combination has hit consumer spending hard, with retail and hospitality both under pressure.

The liquidation figures reinforce this: construction alone saw 768 companies liquidated in the year to March 2026, with hospitality (concentrated in the North Island, as tourism has skewed toward the South Island) and other services also hit hard. Automotive repair is a newer casualty, partly because insurance companies are increasingly directing repair work to their own panel-beating operations.

A significant driver behind the liquidation wave is unpaid tax. Around $9.3 billion is owed by businesses, much of it stemming from COVID-era provisional tax deferrals that have since caught up with companies. IRD has become far less tolerant of these arrangements and is now moving more quickly to liquidation where debts go unpaid.

How can you protect your cashflow in a slow economy?

Once costs rise, they tend to stay up. Wages, insurance, rates, and rent all move in one direction. This means margins get squeezed even if revenue holds steady, and profit reduction is the natural result.

Some practical steps to protect cashflow:

• Run a weekly cashflow forecast, not just annually. This applies to businesses, property investors, and PAYE earners alike.
• Reprice for inflation. If your costs have gone up and your prices haven't, you're absorbing the increase yourself. If competitors are raising prices too, there's room to do the same.
• Get paid faster. Consider a seven-day invoice period rather than the traditional 20th-of-the-month convention, and follow up promptly on late payments.
• Talk to IRD before you default, not after. Contacting IRD proactively and setting up a payment plan avoids penalties (which can hit around 6% within the first week of a default) and keeps the relationship workable. Tax pooling can also be a penalty-free way to manage a deferred tax payment.
• Reduce overheads. Sell unused assets, sublease surplus space, and address surplus staffing.
• Know your break-even point. This is the exact sales figure needed each week to cover wages, rent, loan repayments, and suppliers.

Is AI a threat to your business, or a tool?

Around 82% of New Zealand businesses are already using some form of AI, though for most, that just means built-in features like "summarise" or "draft this" in existing software. Genuine transformation comes from redesigning how work actually gets done, not just bolting AI onto an unchanged process.

A Deloitte/2degrees study found SMEs using AI properly earned around $400,000 more in the last financial year than comparable businesses that weren't. This gap comes from rethinking workflows such as quoting, customer enquiries, and admin, rather than from surface-level use.

Only 13% of businesses currently have an AI policy, despite near-universal usage, which creates real risk around staff pasting sensitive client data into public tools.

Recommended approach

• Quick wins: Drafting emails, quotes and proposals, meeting notes, marketing content, and first drafts of policies. These are all things a business can start using this week.
• Operational uses: Triaging customer enquiries, cashflow and sales forecasting, reviewing contracts and supplier quotes, and automating repetitive admin.
• Guardrails: Have a policy on what's allowed, never paste sensitive client data into public tools (business-grade tools generally don't train on your data), and always have a human review anything that goes out the door. AI can be confidently wrong, and mistakes under your letterhead are your reputation, not the software's.

To start, pick one repetitive, painful process and fix it end-to-end before moving to the next.

How do you win and keep clients when spending is down?

With customers spending less, acquiring brand-new clients is genuinely difficult right now. The better return comes from:

• Looking after existing clients: Ask for additional work and prioritise retention.
• Referrals: Seek referrals from clients and business-to-business relationships, such as bankers or other professionals, and reward those who send referrals your way.
• Reliability: If you promise a delivery date, meet it, or communicate early if you can't.
• Owning your own channels: Email lists and a social media presence keep you front of mind so clients don't shop around.

Interestingly, one client example bucked the trend by doubling marketing spend during the downturn and gaining market share. This is a reminder that some businesses do well by leaning into visibility while competitors pull back.

How do you hire and keep good staff during a downturn?

A bad hire is estimated to cost 1-3 times the person's annual salary once recruitment, training, lost output, and potential mistakes are factored in. This can turn a $70,000 role into a $70,000-$210,000 problem if it goes wrong.

Four ways to improve the odds:

1. Hire slow. Use a scorecard, a work sample, and genuine reference checks rather than gut feel.
2. Onboard properly. A written 30/60/90-day plan roughly doubles retention odds and costs little to prepare.
3. Retain before you need to. Regular one-on-ones, honest pay reviews, and flexibility are cheaper than replacing someone after they've resigned.
4. Consider whether you need to hire at all. Contractors, part-timers, offshore support, or AI workflows may cover a gap without committing to a permanent salary.

How can your bank help your business through tough times?

Banks are, in our view, a business's lifeline for cash flow, banking facilities, and overdraft support. Here's our key advice:

• Build the relationship. Being a good customer, not rude and not a surprise-generator, makes it far easier to get support when you need it.
• Ask early, not late. Banks can offer interest-only periods, mortgage holidays, working capital, overdraft facilities, refinancing, and debtor finance. However, they respond far better to an honest forecast presented in advance than a last-minute request.
• Shop around if you're not being looked after. This is particularly important when coming off a fixed-term loan. Cashbacks and better rates are often available from a new bank.
• Consider second-tier lenders. These may be an option if a main bank isn't able to help.
• Watch your credit rating. This is particularly important around IRD debt, which can be referred to collection agencies.

What should you do if your business is struggling?

For businesses under real pressure, a few key points:

• Talk to creditors, the bank, and IRD before you default, not after.
• Know your formal options, including compromises with creditors or, if necessary, voluntary liquidation.
• Never put your family home up as security for business purposes. A personal or business guarantee is one thing; your home is another.
• Pay PAYE and KiwiSaver first. These aren't considered your money to withhold.
• Avoid trading while insolvent, which carries personal risk for directors.

My recommendation, and this is not just for businesses under pressure, is to keep a simple one-page statement of position showing cash on hand, amounts owed to you, and amounts you owe. Update it regularly so you know where you stand. I update mine every few days.

Contact us at GRA if you need help. We have lots of experience in dealing with creditors, including IRD, and helping businesses find the right path forward. Getting a professional involved early on can often result in more options and a better outcome for you.

How do you position your business for the upturn?

Every downturn ends, and businesses that use this period to tighten their numbers, sort their pricing, and get their systems working are the ones positioned to benefit as conditions improve.

Get professional advice around structuring, such as keeping business ownership and the family home in separate trusts, so that a guarantee given in a commercial lease, for example, can't expose the family home.

FAQs

How much cash should a business or investor keep on hand in tough times?

My own rule of thumb is roughly 10% of total portfolio value held in accessible cash or facilities, such as savings, an overdraft, or credit cards.

Another benchmark is to have three to six months of fixed operating costs covered. The right figure depends on the size and nature of the business, and this doesn't need to be cash sitting idle. An overdraft or credit facility can serve the same purpose.

Which banks are easiest to deal with at the moment?

We noted this varies, and banks often treat prospective new customers more generously than existing ones. If your current bank isn't supporting you well, it's worth shopping around, particularly when a fixed term is coming up for renewal.

Why keep your business ownership separate from the trust that owns your family home?

If your business's trust provides a guarantee, for example on a commercial lease, and the business later defaults, that guarantee can expose whatever assets sit in that trust.

Keeping the family home in a separate trust means it isn't exposed if the business runs into trouble.

What should I do first if I'm behind on tax?

Contact IRD, preferably through your accountant, before you default, not after. A proactive call or a payment plan avoids automatic penalties.

PAYE and KiwiSaver should be prioritised first, as these are considered funds held on behalf of others rather than the business's own money.

Is AI actually worth using for a small business?

Our view is firmly yes. Even simple, low-cost use, such as drafting emails, preparing meeting summaries, and creating first-draft marketing content, can free up meaningful time.

However, a human should review anything before it goes out, and sensitive client data should not be entered into public tools.

Watch the webinar recording