The big news recently on the New Zealand business front has been the demise of Pumpkin Patch and the Wynyard Group. Although such news can send unsettling shockwaves through the business community it also serves as a timely wake up call for the small business owner.
On the surface both companies appeared to offer strong models of success that any business owner could and should emulate. But their collapse highlights some important lessons that business owners need to heed.
Pumpkins need the right soil for growth
The children’s clothing company, Pumpkin Patch, was truly a Cinderella of the NZ business ball. In the four years from 2004 to 2008 the number of NZ and Australian stores doubled and a massive expansion programme saw pumpkin patches spreading throughout the USA, U.K and Europe while share prices went through the roof.
But this is where it all started turning pear shaped. This expansion programme was largely funded through disproportionate debt that left the company in a very vulnerable position.
The company’s instability was compounded by a weak NZ infrastructure, a lack of international expertise and an inability to keep up with the latest trends in children’s fashion.
The sad Wynyard saga carries similar warnings about the dangers of extravagant business expenditure relative to revenue.
Clearly not all fairytales have happy endings but although Cinderella took a big risk attending the ball she obviously had a lot of reliable credit with a well-heeled financial backer who was prepared to overlook her origins.
The upshot is that if you want to avoid seeing your elegant business carriage turned into a pumpkin you need to balance very carefully any exposure to risk against your credit and revenue and never lose sight of your long-term goals amidst the ups and downs of small business ownership.
The final lesson in this tale of business morals; it’s always good practice to go over your strategies with us as your expert financial advisor - after all even Cinderella needed a little help getting to the ball.