Planning for the recovery: NZ businesses and Covid-19
Start making preparations now to put your business in the best possible position.By Trade Me 20 March 2020
Coronavirus has already had a far-reaching impact on businesses and the New Zealand economy.
However, it’s important to remember that the current situation is temporary, and there are concrete steps you can take now to lessen the short term strain, while also planning for the future.
1. Understand your business and manage your cash flow
Businesses owners who experienced the Global Financial Crisis know just how crucial cash is during periods of uncertainty. Companies that have a reliable free cash flow, and greater-than-average cash reserves are in a better position to cope with recessions than those that don’t.
As such, you should be taking steps to maximise your cash reserves. These include:
- Reducing discretionary spending.
- Arranging to delay impending payments to large businesses.
- Providing incentives to customers and debtors to ensure they pay you on time.
Note: the tax changes coming in on April 1 (lifting the threshold for provisional tax from $2,500 to $5000) will also reduce pressure on cash flow by allowing businesses to defer tax payments.
2. Talk to your bank
If you’re running an SME in particular, and are worried about your cash flow, talk to your bank. While the assistance they might offer will depend on your particular circumstances, potential actions banks can take include:
- Suspending or reducing principal loan payments (and moving to interest-only repayments).
- Providing access to short-term lines of credit.
- Consolidating or restructuring existing loans.
- Proving debtor/invoice finance facilities.
Keep the recovery in mind when making decisions about your business.
3. Utilise the government’s Covid-19 response package
The $12.1 billion financial package released by the government is the biggest of any country to date, as a proportion of GDP.
It has been hailed by economists as an excellent response, and there’s a lot in there for businesses, with wage subsidies accounting for nearly half the total amount ($5.1 billion). Jeremy Wade, head of Trade Me Jobs, says businesses shouldn’t delay in applying for support:
You can apply for the government wage subsidy here, and get more information on eligibility criteria.
4. Don’t be too short-termist in your approach
The structural problems and skills shortages that have existed in NZ for decades will still be there when we come out from the shadow of coronavirus. While proactivity is essential (through taking the types of actions we’ve already discussed), it’s worth remembering that, even during recessions, the vast majority of businesses survive.
It’s important, therefore, not to panic and make swingeing cuts that will put you on the back foot when things pick up. For example, consider whether the costs (in both hours and dollars) of hiring staff to replace lost jobs outweigh the savings made on salaries in the intervening period.
When the recovery does come, this will be a great time to snap up top talent – so it will pay dividends to keep your ear to the ground to ensure you can make the hires you need.