Your Business & Responding to Covid-19

In uncertain times, with constant change, knowing what questions to ask is critical. We’ve put this page together to specifically address the financial response your business could take to Covid-19.

Scroll down to view our videos and resources to help you address the specific challenges bought about by Covid-19

Planning to get through… in case you missed the recent Webinar

Building Business Resilience with WellingtonNZ

Upcoming Tax Payments 

With the current state of things, we thought it best to give you all an update on your upcoming tax obligations, and the options on how to deal with them i.e Tax Traders.

Below are a few dedicated videos on the upcoming tax payments and our suggestions. If you have any further questions, or would like to talk to someone about getting an IRD arrangement or a Tax Traders set-up organised please flick me an email at hamish@convexaccounting.co.nz

Ask Us Anything

Recorded after lockdown begun, here’s a selection of the questions we’ve been receiving from our customers.

What we’re thinking about

Recorded prior to lockdown, here’s the things we recommend you think about in your business

Office Hours / Online Forum

We’re launching “Office Hours” – an opportunity for business owners to come together once per day to discuss how they get through.

This will be an online group discussion for 45 minutes per day. There’s no obligation to attend everyday, but is there if you want to run through anything.

Depending on demand we may split it into two groups. Please reply to this email if you’d like to be involved.

Frequently Asked Questions

In our view, 100% of businesses should look at their eligibility for the subsidy. Not all businesses should take the subsidy up though.

The fishhook with the subsidy is that you need to keep your staff employed at 80% of their current hours.

So for example if your turnover is down 60% then there’s (likely) no way you can keep trading. So even with the Government subsidy, it’s going to be tough to keep your team in work.

It’s about doing the maths and the forecasting on your business to see how you should get through. Read the question below on “What should be in my financial plan?” for more.

When the time comes to approach your bank, it’s important to have a specific request. If you go in knowing what you need you’ll get what you need. If you leave it up to them to throw a number at you then you might struggle.

Remember also that you don’t want to go back to them multiple times. In an ideal world, you’ll ask for support once and that’ll be enough to get you through. That’s not to say you can’t go to them more than once, more that it gets harder for them to say yes each time you ask.

When you to them you’ve also got to give them a credible plan for managing the money. You’ve also got to show them how you will pay them back when this all blows over. We recommend giving them a full budget, cashflow forecasts, alongside multiple scenarios.

They will, no doubt, ask for additional securities. Alternaitvely, they will try and secure the new lending against your personal home. That’s fair at their end – they want to make sure they get repaid. Bare in mind that you’re on the hook if you give them a security, so always check with your solicitor (we can introduce you to one if it would help).

At this stage, we’re recommending that any tax due on 7 April be paid as usual. The IRD have indicated (unbelievably) that this payment needs to be made in full because it relates to income businesses before Covid became a thing. We strongly disagree with the IRD’s position on this (it completely disregards the current cashflow problem many businesses face), yet at the end of the day we need to play within their rules.

That said, we can easily push this payment out for 2 months. Please contact us to discuss the options.

For the 7 May tax payment. We recommend against paying it if you have any inkling that your cashflow may be impacted. Even if you have the cash, we recommend not paying IRD – it should instead be paid into a Tax Pool (see below).

The short version of Tax Pooling is that your tax money is paid to a third party, rather than directly to the IRD. The benefit of using Tax Pooling (in times like these) is that you can get your money refunded to you if needed. Getting it back from IRD is hard, getting it back from Tax Pooling is just a phone call.

So if this thing drags on longer than expected, paying the May provisional tax to Tax Pooling gets the cash out of your account so you’re not going to spend it, while maintaining the flexibility to get your cash on your hands if you need it.

Your funds are held securely with the Public Trust (or other trustee company). We personally use it for our business so recommend it to many customers.

Please contact us if you would like to explore the options from Tax Pooling.

In an ideal world, you would make all GST and PAYE payments on time. However we’re a long way from an ideal world right now.

If you’re unable to make a GST or PAYE payment, talk to your accountant as early as possible. At a minimum, talk to them before the due date for the payment. At best, talk to them before the end of the month the payment relates to.

They can then have a conversation with the IRD to make sure no penalties are charged, and that interest is cancelled out (if possible).

The Government have talked about the IRD writing off all interest on late payments resulting from Covid-19. Unfortunately though this doesn’t seem to have got through to IRD who are talking about only not charging interest when all other funding options have been exhausted.

Please, talk to your accountant in the first instance (or us if you need help) and they can create a plan for managing the IRD.

As with any creditor, be upfront and communicate early. Most landlords we’ve talked to have taken a reasonable approach and are trying to be as accommodating as possible – at the end of the day they want you to survive as a business and to keep being a long term tenant.

Ask them about a payment extensions, or potentially a rent holiday.

Most landlords we’ve spoken to have been happy to put things in place, as long as they know they’ll get the rent back later in the year. Most have been reluctant at this stage to do a rent holiday, but suggested they might be open to it depending on how to coming weeks play out.

Profit is the money your business makes – think invoices issued or sales made to your customers, minus the expenses you’ve had to meet (think wages, rent, purchases and operating costs).

Cashflow is the payments you’ve made, minus the money people have paid you.

A sale will be counted as profit as soon as you issue the invoice. That sale won’t be counted for cashflow until the customer pays you.

So, in uncertain times people may delay paying you – this creates pressure on your cashflow, and a significant mismatch between your profit and cashflow.

The key to managing your cashflow lies in (a) knowing what your profit will be, and then (b) managing your cashflow cycle.

To find out more about the cashflow cycle, checkout this podcast we recently put together. Ultimately though, at each stage of your business (from waiting for inventory to arrive, doing your work, selling your product or service, issuing an invoice, through to getting paid) takes time. The longer things take, the longer you’re out of pocket for.

So if profit is down, and the cashflow cycle takes longer than it should, then you feel the pinch twice. Once because profit is down, then again because cash is stuck.

The critical element in managing your cash through these uncertain times is to shorten your cashflow cycle.

Then, with the cash you do have, manage your debt repayments. Talk to your bank, the IRD, your creditors and your landlord. Present them with a realistic plan for you to get through the coming months. If you have a credible plan then you’re much more likely to get a “yes” from them.

Your plan to get through should include:

  • A budget for business as usual, then additional scenarios showing the different sales level – present a plan showing what it would look like if sales were down (say) 20%, 40% and 80%.
  • Identify which spending is nice to have, and the spending which is essential. In those budgets, remove the nice-to-haves in the extreme scenarios. So, show what cuts you’d make if you had an 80% reduction in sales.
  • Then work each budget scenario through a cashflow forecast. Show what your bank position would look like.
  • Finally, know your breakpoints. There’s scenarios where you can operate as usual, while others might require you to drop to a skeleton staff, or put your business on a hiatus until this thing blows through. By knowing your lines in the sand you can more easily move forward.

A credible plan will help you sleep at night knowing you’ve got a clear path forward through the uncertainty. You’ll also be in a better position to lead your team – if they know you’ve got your house in order they’ll feel far more comfortable following your lead.

The plan also helps with the bank, IRD, creditors and your landlord. They’ll be able to say “yes” quicker if they know you’ve got your ducks in a row.

Different businesses are impacted in different ways. We’ve seen the stories of distillaries now making hand sanitiser, and delivery companies being rushed off their feet – we’re all responding diffferently.

As Chartered Accountants, we’re helping by educating our customers (and non-customers alkie).

If you’ve got staff who don’t have work to do, then could you share them with other businesses who are rushed off their feet (like supermarkets). If you’ve got delivery trucks which are underutilized then could they help other businesses who have more demand for home deliveries? If you’re an IT business could you help businesses pivot to work from home?

If you can help then reach out. We’ll put you in contact with other businesses who could use a hand with whatever it is you’re offering.

Think of it like Tinder – we’ll match business who need something, with others who can help. We’ll take care of the swiping for you.

We’re more worried about what happens when this thing finishes – more than we’re worried about what the coming weeks look like.

Over the coming weeks, many businesses will be financially gutted. They might have let staff go, run down stock levels or tapped out their overdrafts.

When we get back to business-as-usual (or a semblance of), we’ll need to get moving again. Rebuilding stock levels, staffing and marketing.

If Balance Sheets are weak, then it’s hard for businesses to get moving again. So, they get hit twice – once during this thing, and once again when they start moving. That’s our real concern.

This is hard to deal with – the only way through it is with a sound financial plan. Talk to your accountant about what should be in your plan.

Best case plan for what we’re certain of – 4 weeks, plus whatever you’ve agreed to pay your employees over this period. Then start thinking about what the reopening process looks like for your business, and how you think it will play out.  Finally, do another scenario where your reopening is pushed out another three or four weeks. This starts to give an idea of what your cashflow and balance sheet will look like.

It’s important to remember that regular employment law still applies, and you’re obligated to pay 100% unless you’ve got agreement from your employees. So, make sure you take advice. Govt conditions require a minimum of 80% using a best endeavours basis. The question at the end of the day is what those best endeavours look like. Ultimately we’ve been encouraging our customers who are dropping employee pay to be 100% transparent with their teams, and share as much financial information as possible.

Exceptionally, but don’t jump to take their funding – only where needed. It’s understanding  how much you need and not taking any more. 30 year mortgage could be extended by 2 years. A business needing $50,000 could require an extra $1600 per month moving forward. With the new business-as-usual, will you be able to get through with that?

Want help to run through the specific situation for your business?

No charge, no obligation consults

We know that general advice and articles only go so far. Sometimes you just want to run through your specific situation with someone.

We’re happy to help on a no cost, no obligation basis. As Chartered Accountants, we’re having conversations with business owners constantly and are happy to work through your options in light of what we’ve seen other people doing.

We’re also business owners ourselves – we’re internally facing cashflow and other issues the same way you could be. We’re happy to share what we’re doing to help you manage your situation.

To be clear, this is no cost and no obligation. So, if you want to talk just reach out via the contact form.

Please note that we have a significant demand for consults so we will get to you as quickly as possible, on a first-in basis. Often we need to limit these to 30 minutes and via phone depending on the availability of our team. Rest assured though, we are prioritising these consults to keep businesses moving.

Contact us to arrange your consult

Please enter your details below to schedule a no cost, no obligation please enter your details below. We’ll get back to you as soon as possible.

Alternatively, call Hamish on 021 752 270 or Riann on 027 261 8760.

Our people

Accounting Solutions Wellington | Chartered Accountant Firm

Riann Umaga-Marshall

Director

027 261 8760

Professional Chartered Accountant | Convex Accounting

Hamish Mexted

Director

021 752 270

Tax Accountants In Wellington | Convex Accounting

Eugenie Jones

Senior Accountant

04 212 4977

Our two cents on how you should think about the coming months

The short version

  • Think about the impact on your turnover (how will your industry be affected)Then work out how you can respond (pricing, costs, balance sheet management)
  • Get your bank onside and get the right banking facilities
  • Consider Government support for staff in isolation
  • Look at Government support for a reduction in your turn-over
  • Delay asset purchases until April (for purchases between $500 and $5,000)
  • Talk to the IRD about repayment options
  • Get personal support if you need it.

It’s about coming up with a Business Continuity Plan for your business to keep things ticking over during this uncertain period.

The disclaimer to this is that everything is very new. We’ve prepared this to the best of our knowledge, but things are changing quickly. If there’s anything you want more information on then please let us know.

 

What we’re thinking about

Ultimately the game has changed for the next period of time. This means a significant impact on turnover for many businesses.

Some of the industries which will be impacted are obvious. Think tourism (with borders closed), retail (fewer people out shopping), and hospitality (few people out eating and drinking).

There will be flow on for many other industries – think hairdressing (if people feel like cash is tight they de-prioritise personal care), lawyers (people will be less likely to buy/sell property), and mechanics (vehicle repairs will be delayed where possible).

In general, we would expect to see an overall decrease in spending, across every industry.

This decrease has two flow-on effects. Firstly, it reduces your gross profit. The reduction in gross profit can be mitigated by you buying less, and (to the extent you need to) managing staffing levels. Support is available from the Government – keep reading…

Secondly, you need gross profit to cover your operating costs. So it becomes a question of managing outgoings to make the gross profit go further.

 

How you could respond

Your options for responding become to:
• Change pricing strategies
• Reduce costs (both cost of sales and operating costs)
• Manage your Balance Sheet (don’t worry – keep reading and we’ll explain what this means)

Pricing Strategies
Some consumers have additional cash to spend through the Government support package. Others will change where they spend their cash. Does that give your business an opportunity to capture more of their (potentially) limited spend?

Discounting could be an option to attract more customers (make sure you understand the impact of discounting though – read more here). Alternatively increasing your prices mitigate against the reduced customer numbers. Ultimately though it comes down to you working out what the changed business environment means for your business.

Reduce Costs
Then, look at your overhead structure. Some areas might require more spending on (for example advertising), others require cuts (stock purchases). It’s about identifying what you can cut, when you should cut, and what the criteria would be for you to spend at usual levels.

Balance Sheet
Then think about your Balance Sheet. Here we’re talking about what you owe people, and what people owe you. Chase your debtors (people who owe you money), and chase them hard. It’s important you get your hands on your cash to get through this period. Run your stock down to minimum levels – convert stock (or half finished jobs if you sell time) into cash.

It comes down to managing your working capital cycle, and then making your cash spin quicker. Checkout our recent podcasts on the Cash-flow Cycle and Spinning your Cash for more details.

With the people you owe (think IRD, the bank, your suppliers, you as shareholder of the business), talk to them early, manage payments, and think about accessing additional facilities to keep your business moving.

 

Banking support

Ultimately, some businesses will struggle to stay afloat. They may struggle to make existing loan repayments, or will require more lending to keep trading. Some businesses may have owners who struggle to make personal lending payments.

To be clear, there is no shame in this. It is more common than you may think, and is something which occurs with every economic shock (think global financial crisis).

Banks are open to discussing support. Especially if you talk to them early and present an accurate picture of where you’re at.

In our experience, banks are more open to saying “yes” if you can:

  • Present clear financials on where you’re at today
  • Explain a picture of what you think you’ll need
  • Show a clear forecast of what you’ll be spending your money on

Ultimately, we’re talking a solid budget, backed by a clear cash-flow forecast (remember – the profit shown on your budget is different to your cash).

 

Government support

For business, including self employed and contractors, the main Government support comes in the form of:
1. Wage support for staff in isolation
2. Wage support for businesses with reduced turnover

Staff in Isolation
This is available to all staff, self-employed, and contractors who need to self-isolate, are infected, or are caring for those who are isolating or are infected.

It only applies where any existing leave entitlements are exhausted and the employee can’t be paid as usual (so if they’re infected and sick leave is already used up).

There are some fishhooks though:

  • The employee must register with Healthline
  • You are not covered if you leave NZ from 16 March
  • It only covers sick leave from 17 March onward (you’re not covered for leave prior to the announcement)
  • The employee must unable to work from home

The employer must pass the payment onto the employee when received. The amount of the payment is $585.80 per week for full time employees, or $350.00 per week for part time employees.

Please contact us if you would like to apply for this so we can talk you through the process.

Reduced Turnover
If your turnover has reduced by 30%, then you’re entitled to wage support for each of your employees. This is designed to help you avoid laying off staff as a result of the reduced turnover.

All businesses should consider applying for this subsidy.

The application needs to be based off you having a reduction in turnover of at least 30% from January 2020 to July 2020 on a month to month basis.

So, if your January 2019 turnover was $100,000, and your January 2020 turnover was $70,000 you’d be entitled to the subsidy.

It can be based off actual turnover numbers, or your forecast for the coming months. Please let us know if you’d like to put a forecast together to access the subsidy sooner rather than later.

You’d then receive a lump sum amount per employee.

It’s important to note that:

  • You must keep your employees at a minimum of 80% of their income for the period of the subsidy (effectively keep everyone at a four day working week)
  • You must actively manage the impact of Covid-19 on your business (for example by engaging with your accountant!)

You’ll be entitled to $585.80 per week for full time employees, or $350.00 per week for part time employees. The amount will be paid as a lump sum once your application is processed. The amount you can received is capped at $150,000.

Applications can be made from today for the next 12 weeks.

As with the grant for staff in isolation, please contact us prior to applying.

 

Tax changes

Today’s announcement saw the introduction of tax changes (some temporary, some permanent). These changes include:

  • The value for low value assets has been increased to $5,000 for the 2021 financial year (not for this financial year). This means assets worth less than $5,000 can be written off immediately, rather than being treated as an asset (the current threshold is $500).We recommend holding off asset purchases worth $500 to $5,000 until April to take advantage of the new rule. For the 2022 and subsequent years, the threshold will be $1,000.
  • The reintroduction of depreciation on commercial properties, at 2% per annum on a diminishing value basis. This is a permanent change and applies for the 2021 financial year (again, not this tax year).We will address this with customers as part of preparing your 2021 Tax Return (and factor into tax payments).
  • Interest charges for late payment of tax can be written off for two years on all payments made from 14 February onward. You must who that your inability to pay tax was a result of the Covid-19 outbreak.As with talking to the bank, if you’re unable to make a tax payment we always recommend that you talk to the IRD as quickly as possible. They’re (mostly) a reasonable bunch and if dealt with properly generally say “yes”.
  • The threshold for paying provisional tax has been increased from $2,500 to $5,000 per annum. Again with effect from the 2021 financial year.

Please contact us if you would like more information on any of these tax changes.

 

Personal support

We’ve spoken with many business owners over the last few days and see a growing need for support in the business community.

If you are struggling, we recommend the Xero Assistance Program. This provides face-to-face, telephone, live chat and online counselling, as well as key resources, all paid for by Xero. Please click here to find out more.

Otherwise, please reach out to us. We know your financial position, and we know what it’s like so please reach out.

 

What we’re doing

Now internally, we’re doing exactly the same as other businesses – being sensible and washing our hands. So, we’ll try and keep you safe if you need to come into the office. That said, if you would rather meet via Skype or Zoom just let us know.

We’re also re-crafting our own budgets and cash-flow forecasts. These then feed into our Business Continuity Planning (let us know if you’d like more information on what this looks like).

Ultimately we’re doing the same things for our business as we’d recommend to you and your business. If you need a hand in creating a plan for your business, or have any questions at all then please reach out (call Hamish on 021 752 270 or Riann on 027 261 8760).

Need help? Get in touch

If you want to run through what any of this means for your business then please get in touch. We’re happy to arrange a no cost, no obligation consult to run through your situation.

Our recent articles (some written before Covid became a word we knew) which may help