6 strategies to manage cash flow during COVID-19

Cash flow tips for small businesses during COVID-19

The coronavirus crisis has put the squeeze on many small businesses with unprecedented speed. Here are some ways to help protect your cash flow.

In such uncertain times, many small business owners are already working hard to do what they can to protect their cash flow, their businesses, their staff and themselves.

Here are some strategies that could help:

1. Apply for any government aid you’re eligible for

The New Zealand Government last week unveiled a $12.1 billion-dollar stimulus package that included measures to help businesses, employers, the self-employed, registered charities and incorporated societies overcome the immediate cash flow impacts relating to COVID-19.

Among them are:

  • Wage subsidies.
  • Leave and self-isolation support.
  • Tax changes.

The one-off wage subsidy is available to eligible New Zealand employers regardless of size, as well as to contractors, sole traders, the self-employed, registered charities and incorporated societies. The subsidy amounts to $585.80 for each person working 20 hours or more each week and $350 for those working less than this each week.

Employers and the self-employed are eligible for the subsidy to cover themselves and their employees, if the business has experienced a decline of 30% or more in actual or predicted revenue between January and June 2020, compared with the corresponding period last year.

The same payments per person have also been made available to cover anyone who is unable to work because they are sick with, or forced to self-isolate because of, COVID-19. In this instance, the isolation payment covers a period of 14 days.

For full eligibility information and other details, please refer to the government website.

Employers seeking more information on these payments can also call the government helpline on 0800 40 80 40.

Here’s what you need to know about the NZ economic stimulus package (information is current at 23 March 2020, with more schemes expected to be announced in the near future).

Meanwhile, other stimulus measures include cash flow and tax support for businesses as New Zealand moves into the 2020/21 financial year. These include:

  • Doubling the provisional tax threshold from $2,500 to $5,000.
  • Allowing businesses to depreciate commercial and industrial buildings.
  • Raising the threshold for small asset depreciation to $1,000 in the current tax year, and to $5,000 for the 2020/21 financial year.
  • Scrapping the hours test applied to the In-Work Tax Credit (IWTC) from 1 July 2020.

In addition, the Minister for Tourism and Māori Crown Relations: Te Arawhiti, Kelvin Davis, says an additional $1 million in funding would be allocated to needs assessment for Māori businesses, in order to devise and implement a dedicated business response plan.

The measures provide some much-needed “breathing room” for small businesses, according to John Cuthbertson, New Zealand tax leader at CA ANZ. However, he suggests the flagged tax changes will also help employers to recover from the COVID-19 crisis longer term.

2. Get in touch with the IRD to discuss relief options, where needed

The Inland Revenue Department has urged any small businesses experiencing cash flow disruptions as a result of COVID-19 to get in touch and discuss assistance options.

Businesses can apply to set up an instalment arrangement for taxes owed directly through the myIR portal.

There is also scope to apply for a write-off of tax debts where businesses are suffering serious hardship and know that they simply won’t be able to pay the full amount.

Other potential tax relief options include:

  • Extensions on the filing date for income tax returns.
  • Waiving of late filing penalties for GST and PAYE returns (although the due dates for the returns can’t be extended).
  • Contractors may be entitled to a certificate of exemption for schedular payments.
  • Early refunds if provisional tax has been overpaid.

And be sure to make use of the various existing tax deductions available to small businesses, including these deductions you may not already know about.

Businesses can contact Inland Revenue’s Adverse Events Line on 0800 473 566 to discuss assistance options.

3. Follow up any unpaid invoices

These are difficult times, it’s important to work with your customers and be flexible with unpaid invoices. If your customer can’t pay the full amount due, try to get a partial payment or create an instalment plan.

You can start chasing late payments with a friendly email, followed by a phone call. If that’s not getting you anywhere, try asking to talk to the person who actually makes the payment and getting a promise to pay by a particular date.

Many energy companies also offer extensions to payment terms for unpaid energy for commercial customers too – contact yours to find out if you qualify.

4. Seek relief on rent payments

It can be possible to negotiate with your landlord over commercial rents, with some tenants already securing amended terms.

“Some landlords are working constructively with retailers and offering rental holidays or reduced rents to help navigate through the crisis, and Retail NZ applauds those who are doing their best to help,” the retail body’s chief executive, Greg Harford, says.

5. Reconsider your staff structure

For many business owners, the thought of having to let staff go during a downturn is a major source of stress.

Government support packages, particularly the government’s wage subsidy, are available to help support businesses keeping staff on.

However, it is worth keeping in mind that there are a number of other options available to employers short of termination, such as:

  • Asking staff to work from home, if it is safe and appropriate to do so.
  • Encouraging staff to use their annual leave.
  • Asking staff to take unpaid leave.
  • Discussing temporary salary or wage reductions with staff.
  • Negotiating job-sharing arrangements to move full-time staff to part-time.
  • Temporarily standing down staff with a view to rehiring them as business improves.

“We recommend that employers proactively consider these issues and what their response might be, bearing in mind that the situation is likely to evolve over time,” explains law firm Buddle Findlay.

“As always, preparation and open communication are key. Aside from health and safety considerations, employers would be prudent to recall the overarching obligation of good faith, which applies to all employment relationships, when making decisions on how to deal with individual circumstances.

“Employers are encouraged to discuss and agree a format for dealing with individual risks in a way that is suitable to both parties, whilst ensuring wider compliance with duties under the HSWA [Health and Safety Work Act]. We recommend such agreements are clear and in writing, to avoid any doubt.”

Employment New Zealand has reminded employers that they must act “fairly and reasonably” when making changes to their job.

The regulator has a dedicated website on changing an employee’s working arrangements due to COVID-19, as well as a step-by-step guide for the workplace change process.

6. Review and reduce any unnecessary overheads

Rent and staff costs may be among the biggest overheads for many businesses but far from the only ones.

Now is a prime time to review some of the regular expenses your business incurs and separate out the must-haves from the nice-to haves.

One place to start is with any online software or subscription services you are signed up to that aren’t essential in this period. Cancelling them can reduce your outgoings and keep your cash flow healthier.

Other ideas are to jump online and do price comparisons on your major bills and shop for a better deal.

You could start with your internet and phone provider, and then move onto your insurance and energy bills.

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The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.