Understanding and Mitigating Business Risk in 2026

Running a growing SME in New Zealand is always a balancing act. As we head into 2026, business owners face a complex mix of economic, geopolitical, and operational risks — but also opportunities to build resilience, flexibility, and long-term strength.

Understanding these risks and implementing proactive mitigation strategies can mean the difference between navigating uncertainty successfully or being caught off guard.  Not dissimilar to post GFC, we are likely to revisit the stages of “Survive, Revive, Thrive”.  Each comes with its own challenges, and cash flow management will be at the heart of every strategy as the economy rebalances towards growth.

The Economic Backdrop: What SME Owners Should Know

The economic context for New Zealand businesses remains cautious. Inflation has returned to target, and borrowing costs have eased slightly, but household spending is subdued, and consumer confidence remains fragile. Many SMEs are reporting rising operational costs, from labour and utilities to supply chain and compliance requirements.  The NZD exchange rate remains unfavourable against the USD and liquidators are forecasting company failures to continue into mid 2026.  Recovery of New Zealand's macro landscape will likely take the full year, and some.

For SMEs with turnover in the $5–$20 million range, these macro factors can quickly squeeze margins or destabilise growth if not properly managed. This makes a thoughtful risk-management approach essential. Understanding your exposure across finance, operations, people, and market dynamics is the first step toward building a resilient business.  Whilst “Cash remains King” the repeating phrase for 2026 is likely to be “Working Capital Headroom”.

Key Business Risks for 2026

1. Economic & Demand Risk
   Soft domestic demand is a major consideration. SMEs reliant on discretionary spending — for example, hospitality, retail, or non-essential services — may see weakened sales. The recent IKEA opening may impact on competing retailers.  Rising costs for energy, transport, and raw materials can erode margins and cashflow.  The NZD exchange rate against the major currencies we trade with will take time to recover and the usual trend is that the NZD falls over the festive season due to our closedown period.  A typical historical trend we can expect towards late 2026 is a slowdown in consumer spend and project approvals during an election period (Oct\Nov).  That said, in an election year we may see some early (and welcomed) project greenlights as early campaign enticements.
   
   
2. Supply-Chain & Global Trade Risk
   New Zealand remains exposed to disruptions in global supply chains. Freight delays, shipping cost spikes, and trade tensions can affect both imports and exports. SMEs that rely heavily on a single supplier or market face amplified risk.  The return to Just-in-Time (JIT) is likely some time away, and we are still yet to fully experience the impact of the Trump administration tariffs. A heightened volatility in the Ukraine war with a greater involvement from European countries will only increase disruptions.
   Diversifying suppliers — including local and regional options — reduces exposure to global volatility. Reassessing procurement strategies, maintaining buffer inventory for critical components, and negotiating long-term supply agreements can help protect operations and margins.
   
   
3. Labour and Talent Risk
   Skills shortages continue to challenge SMEs, particularly in technical and specialised roles. Recruiting, training, and retaining qualified staff can be costly, while turnover disrupts operations.  In the current economic climate salary increases have been low and aligned with the lower inflation rates.  It’s likely we will see a spike in salaries and wages as businesses compete for quality talent to create capacity for the expected productivity growth.  Culture and an opportunity for career growth will become core decision attributes of jobseekers.
   
   
4. Technology, Cybersecurity, and Digital-Transition Risk
   Adoption of digital tools and automation introduces both opportunities and risks. Cybersecurity threats, data breaches, and insufficient oversight can have serious consequences for operations and reputation. Failing to adapt to technological change can also leave SMEs trailing competitors who capitalise on efficiency gains or new business models.  Ai will become more prevalent as we see it become more accepted and adopted, resulting in increased capital investment in technologies.  The old way may no longer be the hi-way.
   
   
5. Regulatory, Compliance, and External-Shock Risk
   Regulatory shifts — environmental, health & safety, employment law, and trade compliance — can impose new burdens. Natural disasters or climate-driven events also remain a threat, particularly for businesses with regional supply or distribution networks.  There could be increased regulatory change as we approach an election.
   
   
6. Cashflow and Financial Risk
   Tight margins and smaller cash buffers make SMEs vulnerable to sudden cost rises, demand drops, or unexpected investments. As businesses look to recover in a growing economy, working capital is required to fund that growth, namely debtors, inventory, wages and CAPEX.  There is a timing lag between profits and receipt.  The typical lack of cash flow across businesses in the festive closedown will place undue strain on an already tight cash market.  Managing long overdue debtors will be critical to avoid material bad debts.

Mitigation Strategies for NZ SMEs

1. Build Financial Resilience Through Cashflow & Scenario Planning
   
   > Implement rolling forecasts and scenario planning (best case / worst case) to anticipate cost spikes, demand drops, or supply disruptions.
   
   > Maintain sufficient working capital to cover at least 4–6 months of operations, particularly for businesses with seasonal demand.
   
   > Explore fixed-rate financing or alternative funding options to protect against rising borrowing costs.  Match the life of the assets with the life of the loan.
   
   
2. Diversify Supply Chains and Re-evaluate Procurement Strategy
   
   > Build relationships with multiple suppliers, including local and regional options, to reduce reliance on any single source.
   
   > Reassess “just-in-time” inventory practices; for critical components, maintain buffer stocks to absorb disruptions.
   
   > Negotiate long-term supply contracts or fixed pricing where feasible.
   
   
3. Embrace Operational Flexibility and Digital Transformation
   
   > Invest in technology and automation to improve efficiency, reduce manual work, and free staff for high-value activities.
   
   > Conduct regular cybersecurity audits, train staff, and implement strong data protection protocols.
   
   > Use real-time monitoring tools for sales, costs, and cashflow to enable faster, more informed decisions.
   
   
4. Prioritise Talent Strategy, Training, and Retention
   
   > Focus on upskilling and internal talent development to build loyalty and versatility.
   
   > Offer flexible working arrangements, career development, and a positive culture alongside competitive remuneration.
   
   
5. Use Pricing, Product, and Market Flexibility
   
   > Consider tiered product or service offerings to cater to different customer segments and absorb cost pressures.
   
   > Explore export or alternative-market opportunities to reduce dependence on domestic demand.
   
   > Maintain transparent communication with customers about price adjustments or supply constraints, emphasising value.
   
   
6. Embed Risk Management and Contingency Planning into Governance
   
   > Conduct regular risk assessments across financial, operational, and external dimensions.
   
   > Diversify revenue streams, customer bases, and service lines to build resilience against single-point failures.

Why This Matters for SMEs

For SME’s, the margin for error is narrower than for large corporations. Unexpected cost rises, supply disruptions, or staff losses can significantly impact cashflow and profitability. By treating risk management as a core business discipline — not an afterthought — SME owners can weather volatility while staying positioned for growth.

Businesses that revive and thrive in 2026 will combine careful planning with agility, innovation, and a proactive approach to people, finance, and technology. Those that build resilience today will be the ones who capitalise on opportunities tomorrow.  A proactive approach to Governance, regular Strategic Planning, and Cash flow Management will be primary focuses for successful, thriving businesses.

Author - Aaron Wallace