Whilst it is still uncertain what wider financial impact COVID-19 will have, in order to take a cautionary approach early we suggest that businesses pay close attention to future cash flows and we highlight some key strategies below.
- Reviewing your debtors ledger and chasing up outstanding debtors.
- Consider whether debtor financing/factoring might benefit your business.
- Potentially offering discounts for prompt payments.
- Ensuring that work performed is invoiced promptly.
- Focusing on converting work in progress to finished product and invoicing as soon as possible.
- Consider offering flexible payment terms such as fee funders etc.
ACCOUNTS PAYABLE AND EXPENSES
- Review overheads to eliminate surplus costs.
- Raise any concerns you have with your landlord, they may be prepared to assist with a rent holiday.
- Ensuring that your creditors are paid pursuant to the engagement terms you have with them. If cash flow is suffering, can you extend terms?
- Prior to 31st March, write off any bad debts and obsolete stock.
- Suspending or reducing drawings or executive salaries.
- Reviewing early payment discounts to ascertain whether you are receiving a financial benefit from paying early.
- Reviewing staff working hours.
- Reviewing your overtime policy.
- Considering whether staff should work part-time.
- Applying for the wage subsidy offered by the Government.
- Review your contracts now to see if there are forced Majeure clauses.
- Should you be in an industry where jobs are jeopardised, there could be other industries facing an immediate demand for staff such as seasonal businesses or businesses involved in logistics.
LONGER TERM CASH FLOW
- Get in touch with your bank early in order to arrange standby funding.
- Convert loans to interest only or extend the term of the loan.
- Consider using tax pooling to smooth cashflow especially as it pertains to the final instalment of provisional tax on the 7th May 2020. We have included the link to Tax Traders offer of tax pooling below.
- Bring management accounts up to date so that the final provisional tax instalment can be reduced if possible.
- Review forecast capital expenditure and question the timing of this. Can it be deferred?
These are a few options to consider, but most importantly having a plan in place in order to protect cash flow now will hopefully limit the impact that Covid-19 will have on your business.
If the business is likely to suffer significant financial hardship with a longer recovery you may need to seriously question whether the business is a going concern.
Being able to forecast the next three months cash requirements is important in order to understand the timing of potential cash flow dips and the amount of funding that would be needed to address these cash flow shortages.
Should you require any assistance on any of the matters raised above, please feel free to contact your BVO adviser. We are here to help implement your strategies.
Download Tax Traders: COVID-19 causing cash flow pressure? We can help.
GOVERNMENT COVID-19 ECONOMIC PACKAGE
A $12.1 billion economic package is to be implemented to support New Zealanders’ jobs from the impact of Covid-19. Of immediate assistance to smaller businesses will be the introduction of the wage subsidy. Tax benefits such as the re-introduction of depreciation on commercial buildings will flow through to the 2020/2021 year.
The detailed policy has been reported widely so we do not intend to repeat this message. We have already assisted clients with the wage subsidy and have found the process to be relatively straight forward. Please contact us if you would like to discuss this incentive. Following is a link to some examples for the wage subsidy.
Ministry of Social Development Website
We attach a link to the Ministry of Social Development website that will enable you to apply for a subsidy if you qualify. We are here to help with your applications if you need assistance.