The Ledger: April 2020
Marcus Wolfgram • April 15, 2020
Welcome to a New Zealand financial year end like no other
Black Ink 1: NZ Government Back Business Loans
As part of the government’s economic response to the Coronavirus, Finance Minister Grant Robertson has launched a scheme to support loans to small businesses via banks in NZ.. The $6.25 billion scheme is backed by the government, who cover 80% of the risk, with the remaining 20% covered by the bank. It is aimed at businesses with an annual revenue between $250,000 and $80 million. Loans are up $500,000 per operating business for up to three years, and must be repaid over this time period. What we know so far:
- These are loans, not grants. Interest, standard fees and credit criteria will still apply. Criteria and interest rates will differ by each Bank.
- Only NZ businesses are eligible and banks will assess applications from existing customers.
- You may be required to draw down on existing facilities before you can draw under a BFGS loan.
- Some industries and activities are excluded including property development and investment. See the full list.
- Businesses will need to provide proof that they can repay the loan. This will involve up-to-date financials including trading figures up until lockdown and a business plan that shows the future sustainability of your business.
- If you are looking for financial support for your business, the more information you can provide the better.
Black Ink 2: What to do in challenging times
‘Business continuity’ is the process of planning out how your company can continue trading – when disaster hits. In essence, it’s your Plan B for how to set up a means of trading, when you don’t have access to your usual offices, workspaces or equipment. Right now businesses are having to put ‘Plan B’ into action. 10 key elements to include for your ongoing business continuity plan
- Location and workspace – Does everyone in the business have a good internet connection for remote working? Make sure you agree on the guidelines for maintaining workflow. Schedule regular online catch ups to check in and agree on the priorities.
- Key products or services – which products and/or services will you be able to offer? For the business to continue trading, you need to identify a core set of products/services. Review which product/services will bring in the required revenue and cashflow, and which activities in the business should therefore be classed as essential.
- Key staff and resources – who are the core people you need for the company to operate? Based on your decisions regarding essential activities, identify who your key management and staff members are. Think about how much resource is needed to trade, how you’ll get approvals and sign-off and what critical knowledge needs to be shared within the team.
- Key contacts and connections – who are your main stakeholders outside the business? And which of these are vital to the running of your business? Make a list of your key suppliers, service providers, property contacts and customers and ensure you can have open communication with all these connections. Also, look at alternative suppliers so you can minimise any disruption to your operations.
- IT equipment, data and infrastructure – what equipment, tools and software do you need to continue working? Essential hardware and software will include laptops, tablets or smartphones for your staff, paired with cloud services, video conferencing, communication apps and effective, secure access to your customer and business data.
- Plant and manufacturing equipment for essential businesses – if you’re a bricks and mortar business, or a product-based manufacturing business, what equipment do you need to carry on your operations? This will include any machinery, hardware equipment and vehicles needed to manage the essential operations you’ve identified for the business.
- Financial management – how will you access your key financial numbers during any outage? It’s sensible to move to a cloud-based accounting system NOW, so you have continuous, uninterrupted access to your financials. A platform like Xero online accounting allows you and your advisers to see those all-important figures.
- Cashflow management – how are you going to ensure you maintain a positive cashflow position? We can help put a process in place to run regular cashflow statements. Use forecasting to project your cashflow position forward in time – so you can take proactive action to avoid any cash gaps in the near future.
- Insurance – does your current business insurance policy cover you for all emergency situations? Review all your existing insurance policies so you understand what your policy covers. Securing the business in all scenarios should be your focus here.
- Leadership – who could take over if you (the owner/MD/CEO), is left unable to run the business? Having a nominated deputy, with a clearly defined chain of command, means you can be confident that the company will be in safe hands, even if you’re indisposed.
Black Ink 3: Other NZ Government Measures
he Government has announced a suite of new measures to provide relief for small and medium-sized businesses during the COVID-19 pandemic. Finance Minister Grant Robertson says while the Government has already acted swiftly in response to the crisis, with about $20 billion in support already announced, it recognises that more is needed. The new measures include:
- $3.1 billion tax loss carry-back scheme (estimated cost over the next two years)
- $60 million estimated annual savings to business each year from changes to the tax loss continuity rules
- $25 million in the next 12 months for further business consultancy support
- Greater flexibility for affected businesses affected to meet their tax obligations
- Measures to support commercial tenants and landlords
- “We have taken decisive action throughout this pandemic to cushion the blow for our businesses and workers - today’s announcement continues that focus. We need our businesses to stay solvent to help with the economic recovery as we emerge from this health crisis.
“Our focus on cashflow and confidence continues through these measures. We have approved a tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year.” We are also changing the tax loss continuity rules to make it easier for firms to raise new capital without losing the benefit of their existing tax losses” Grant Robertson said. Minister for Small Business Hon Stuart Nash says some businesses are struggling to meet their non-wage fixed costs, like interest, rent and insurance, but are not currently in a position to take on additional debt. “We don’t want that to happen, so as well as the tax measures which should provide some cashflow relief, we are going to provide tailored support services to help businesses weather the storm, at no charge to the business.
“Using established services including the Regional Business Partner Network and the helplines run by the Employers and Manufacturers Association and Canterbury Chamber of Commerce, we can get specialist, tailored advice where it is needed, fast. This could range from human resources advice to business continuity planning to financial management – because every one of these small businesses will have a different need,” Stuart Nash said. New measures are also being announced to support stability in commercial property transactions, extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession. Justice Minister Andrew Little says many businesses may be finding it difficult or impossible to pay rent if they are no longer able to access their property, and if landlords are not receiving rent, they may not be able to meet their mortgage obligations.
“As a result, the Government will extend the current 10 working day timeframe that commercial landlords may cancel the lease to 30 working days. This will be for both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach. “The Government will also extend the timeframes for lenders from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods. This will apply to commercial mortgages and home loans. However, the already announced mortgage deferrals are likely to be the first port of call for residential borrowers. “These measures will ensure an orderly process to deal with commercial lease disputes caused by COVID-19," Andrew Little said. Legislation enacting the changes announced today will be introduced on April 27 and will apply effectively retrospectively once the bill is passed. Work is also underway on further support for businesses and households as the impacts of COVID 19 become clearer.
Black Ink 4: China's economy showing signs of life
With the coronavirus outbreak in China seemingly under control, everyone is watching the world's second-largest economy for signs of life after lockdown. Companies are getting back to work, more and more people are out shopping, there was a record expansion in bank lending in March, and exports and imports weren’t as bad as expected, according to data on Tuesday. However, it’s too early to uncork the champagne yet, with data due Friday expected to show that the economy had a historic contraction in the first quarter. China's government enforced a strict lockdown of Wuhan, the capital of Hubei province, from Jan. 23 to April 8. Whether the economy is out of the woods and can drive global growth like it did after the global financial crisis remains to be seen. And even if the domestic economy looks to be improving in April, the real hit to foreign demand hasn’t really materialized yet.
Some Asian nations or regions have done better in containing the virus outbreak than the U.S. or Europe have, and China’s exports to those nations were stronger. Shipments to South Korea, Singapore and Taiwan rose, while those to Japan only fell 1.4 per cent. But much of that trade is of electronic components for goods which are exported elsewhere, so the shutdowns, job losses and social distancing in other parts of the world will likely affect that in the future.
Trade with Europe and the U.S. was hit much harder, with exports to the European Union down more than 24 per cent, and those to the U.S. falling almost 21 per cent from a year ago. With companies there canceling export orders from early March, the declines will be even worse in April, according to Iris Pang, an economist at ING NV in Hong Kong. (scse Bloomberg)
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