6 strategies to manage cash flow 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.

Infographic: A small business guide to the NZ economic stimulus package

As many small businesses across New Zealand face economic uncertainty as the global coronavirus pandemic bites, the New Zealand Government has promised wage subsidies and tax relief. Here’s what you need to know about the economic stimulus package.

COVID-19 NZ economic stimulus package

As governments across the world move to support their countries’ economies by pumping funds into them, New Zealand’s response has emerged among the most generous.

More than $12 billion has been pledged, or around 4% of annual GPD. Almost three-quarters of the funds are earmarked to support business and jobs, in two key ways: wage subsidies and tax relief.

Wage subsidies

The wage subsidies are aimed at any employers significantly impacted by COVID-19 and struggling to keep staff on as a result, as well as self-employed and sole traders.

The subsidy is worth $585.80 a week for a full-time employee or $350 for a part-time employee, paid as a lump sum covering 12 weeks. There is no cap on the amount paid to employers.

For example, if a Queenstown tourism operator with 20 permanent part-time employees saw a significant drop in forward bookings because of the travel ban, they could apply for the subsidy and receive up to $84,000 (20 part-time employees at $350 a week multiplied by 12 weeks).

Those funds would then be used to pay those employees for the next three months.

Tax relief

The has also been an increase in the threshold for an immediate deduction on asset purchases, an increase in the provisional tax threshold and a waiver on late tax payments.

Sign up to the Prospa Blog newsletter for more small business news and tips.

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.

What type of short-term hire will work best for your holiday rush?

Many small business owners are all too familiar with the holiday rush. Just as most of the country is starting to wind down and think about how they’ll spend the festive break, many in retail and hospitality are facing their busiest times of the year.

Making the most of the holiday shopping and festive season frenzy often means bringing more hands on deck. And that’s where it can get complicated.

There is more than one way to hire temporary staff. So how can small businesses hire the right sort of help while keeping up with any compliance requirements?

Temps vs casuals: What’s the difference?

Employsure Senior Employment Relations Adviser, Michael Wilkinson, says small businesses need to be aware of the different requirements and responsibilities when hiring temporary workers and casuals.

“When you use the word temp, you need to understand what that actually means,” he says. “It’s usually referring to a temporary contract, meaning a fixed-term employment agreement for a set period of time.”

Employment New Zealand says a temporary employee is someone who is hired for a specific time period or when a particular event occurs, for example, a worker covering for another employee’s parental leave or a person engaged for a seasonal peak to complete a project.

A fixed-term agreement must include a “genuine reason based on reasonable grounds” for the shorter-term contract, which must be made known to the employee. For example, this could be the end of the holiday period or the completion of a project.

On the other hand, a casual worker is one who is employed on an intermittent basis, without regular shifts or the obligation to accept the work.

Under New Zealand employment law, casual workers need to know their work hours will vary and that they’re not obliged to come to work whenever the employer might need them.

By law, all employees – whether casual, fixed-term or permanent – must also have a written employment agreement. This should explicitly state if the employment has a fixed term and why, or whether it is of casual nature with an expectation of varying hours.

Unemployment at historic lows

Employsure’s Wilkinson says small businesses should assess their staffing requirements for the holiday season and the predictability of their work flows, before hiring staff.

He says, amid increasing unpredictability in retail trading, some employers choose the flexibility of casual staff so they can meet fluctuating customer demands.

But if the work flow is predictable, he says small businesses can engage a fixed-term worker to meet demand – provided they have a reason for the role to end.

But he advises employers to consider what they are “locking themselves into”.

“A casual employee you don’t have to roster. There’s no obligation to do that, whereas a permanent or fixed-term employee needs to be provided with the hours guaranteed in their employment agreement.

“There are always trade-offs.”

The time to act is now

Kirk Hope, the CEO of small business peak body BusinessNZ, says there are already many employers searching for workers and finding skilled staff is a “top concern” for small businesses.

“The labour market is currently very tight in New Zealand,” he says.

“Unemployment is around 4% – an historically very low level. There are many casual job openings in retail in Auckland and in horticulture in regional areas, along with other types of casual vacancies, in the pre-Christmas period.”

Wilkinson says given the approaching peak trade for the retail and hospitality sectors, employers should act immediately to recruit and train their additional staff. Finding yourself short of staff during a peak trading period can very easily mean you leave potential profits on the table.

Need to ramp up your staff numbers ahead of the summer season? Talk to Prospa about how a small business loan could help provide cash flow support, so you can meet extra wage demands.

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, 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 or any loss or damage suffered by any person directly or indirectly through relying on this information.

How small business owners can stay on top this silly season

It can be tough running a small business over the holiday period – while everyone around you is planning trips to their favourite coastal town, many small business owners are facing a time of either feast or famine.

Each brings their own challenges, from either organising extra staff and negotiating cash flow over shut down periods to making sure you get paid before everyone disappears for the holidays.

Here’s how you can minimise these common financial stresses for your business ahead of the end-of-year (EOY) period.

Negotiating cash flow strains

Planning ahead to ensure your cash flow over the EOY period can cover holiday pay and other expenses is vital, says Tibor Mackor, Director at Auckland-based Better Business Strategies.

“A lack of cash flow can cause payment challenges where you, as the owner, are not able to pay your staff, suppliers or yourself,” he says.

Phil Holland, Owner and Founder of Tauranga-based Love Your Business, says it’s critical you start planning early.

“If your business does close down over Christmas or it’s a quiet time, make sure you’ve reflected this in your forecast and working capital,” he says.

If you think you’re going to come up short over the EOY period, Holland suggests you:

  • Organise temporary business finance for the holiday season.
  • Chat to your main suppliers about stretching your terms during that period.
  • Get deposits from customers if you’re able to do so.
  • Minimise any unneeded expenses while you’re shut down.
  • Chase up debtors now – don’t wait or try to do it over the holiday period when they’re away.

Meanwhile, to make sure you’re on the front-foot next year, Mackor recommends you build up a buffer throughout the more prosperous times of the year to act as a safety net if needed during the EOY period.

“I usually recommend business owners save 5% of turnover and teach them to run their businesses on the remaining 95% turnover,” he says.

Chasing up debtors before EOY

When it comes to making sure your invoices are paid before everyone takes off on holidays, Holland says the key is communication and setting expectations.

He suggests small business owners:

  • Bring forward invoice dates (and communicate why).
  • Get your invoices out fast to increase the chance of being paid on time.
  • Offer a payment discount or gift if clients pay their December invoice by the due date.
  • If you have a slow payer, get in touch early and have a discussion about paying on time – set your expectations and boundaries.

To help with tardy debtors, Mackor recommends you obtain a 50% deposit on any work to be done for a client, which helps bring immediate cash flow into the business.

He also suggests making sure your invoice terms and conditions are watertight, so that payment happens when it should.

Using accounting software where your clients are regularly reminded about the outstanding amount, can also help speed up payment. “For example, Xero has a facility where you can program the sending out of a statement weekly,” he says.

Coping with extra staffing demands

If you’re a retail business, Carli Saw, Founder of HR consulting firm Strawberry Seed Consulting, who works with clients in New Zealand, says you need to start prioritising your holiday staffing arrangements pronto.

When looking to put on additional staff, she says the first thing you need to do is define exactly what role you need.

“Where most smaller companies fall down on recruitment is, they just say ‘Hey, we need staff, PM us if you’re interested’,” Saw says.

“But they haven’t really got a clear idea of what they can pay or the role they’re offering, before they go to market, and that causes confusion and delays.”

She says recruiting new staff doesn’t need to cost you hundreds of dollars on recruitment platforms such as SEEK, either.

In fact, she suggests posting jobs on Facebook, in relevant local community groups.

“There are a lot of job boards on Facebook that won’t cost you anything. You can even do promoted posts for a very low fee and target specific demographics,” she says.

To stay open or closed on public holidays

Another big financial decision you’ll have to make in the lead up to the EOY period is choosing what public holidays to stay open for, and what public holidays you’ll be pulling down the shutters for.

To assist you in your decision, we’ve created this handy infographic, which runs you through all the costs and benefits to keep in mind.

If the best-laid plans aren’t looking like enough to get you through the holiday period in one piece, talk to one of Prospa’s business finance specialists about how a small business loan might help ease any cash flow strain. 

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, 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 or any loss or damage suffered by any person directly or indirectly through relying on this information.