8 September 2005
By Hayes Knight principal, Craig Fisher

You may not be aware that New Zealand has a rather interesting demographic bubble flowing through our society at present. The effects of this bubble will become increasingly obvious in the coming years. Like any significant change, this demographic bubble carries with it both opportunities and threats for New Zealanders and their businesses.

At Hayes Knight, we realise that successful business is about keeping the balance between today and tomorrow. Sadly the New Zealand economy has been littered with far too many stories of businesses getting it wrong.

Often these business failures have resulted from solely focusing on todays issues and not seeing a fundamental shift coming in their business areauntil it was too late. Conversely we have also seen the great forward looking and thinking businesses that neglected todays cashflow because they were so focused on their bright future. In both cases the end result is the same; the demise of the business and a tragic waste of entrepreneurial energy, resources. Not to mention a potentially valuable contributor to the New Zealand economy.

Its therefore crucial that you not only ensure that your business continues to be a successful cashflow machine today, but also that you are keeping an eye on the radar screen to see what is coming so you can be best prepared to benefit from these changes.

So whats changing? One of the significant changes all New Zealand businesses need to be aware of is the demographic bubble that is rolling through our society. Any significant societal shifts also have important implications on our economy.

This demographic bubble is basically about our aging population essentially as a result of the baby boomers getting older combined with lower population growth rates and reduced immigration numbers.

The Baby Boomers We hear this term often. But who are the baby boomers? Basically these were the post-war children born between 1945 and 1965. New Zealand, like many countries around the world, noted a significant increase in births in the two decades of peace and improving economic prosperity that followed the second war. These baby boomers are now getting older and by 2010 (& no it really isnt that far away!) the first of the baby boomers will turn 65.

Where are the new babies? Adding to this baby boomer bubble has been the fact that since 1961 there has been a marked decline in our fertility rate in New Zealand. In fact since 1971, only for a very brief period in the 1990s, has the fertility rate been above the replacement level of 2.1 births per woman.

While immigration has had an offsetting impact in some years, the net effect is that we have an aging population in New Zealand. The growth from net migration has also slowed dramatically lately with forecasts of this being break-even or negative in the near future. The number of people aged over 65 has doubled between 1956 and 1996. In terms of proportion they have grown from 9% in 1956 to 12% in 1996. Somewhat frighteningly by 2051 over 65 year olds are projected to make up 26% - just over a quarter of the New Zealand population.

The Business Implication An aging population has the following impacts on business succession:

Maturing workforce may limit the options for internal succession;,

Aging business owners sometimes equating to less energy to drive the business forward;

Fewer potential buyers whenever there is less demand than supply the price of the business goes down;

Increased risk for business owners who see their business as their retirement fund i.e. potentially greater difficulty to realise the value in the business to fund retirement.

So what does this mean for your business or the clients you deal with? We are not advocating you all rush out and invest in retirement villages. However we believe you must take this demographic shift into account in your business strategic planning. Especially with regard to your succession planning. If you are not taking a systematic approach to this then you are endangering your business. The team at Hayes Knight are skilled to advise in this area.

Make sure you wont be caught out by the world changing and your business not being aware or ready be one step ahead.