How to make key business decisions in an uncertain environment? – Cash

Making decisions when there is a high degree of uncertainty is a challenge.  How can you plan and decide when there are so many variables?  How much will your turnover fall?  When will it recover? How does this impact your team? And to compound the uncertainty, stress inhibits good decision making as our frontal cortex shuts down when we are faced with external threats.  This is the part of the brain we use for planning.

Every business owner is faced with this.  This is the first of three articles on how to navigate this uncertainty and be proactive.

Beany looks after 1,000’s of small businesses all across New Zealand.  We are working between our clients, the banks, the IRD and business advisers to help them navigate these scary waters. This three part series attempts to build a framework for decisions which can be applied to your specific situation.

So, part one, if in doubt.

Preserve your Cash

Most commentators are predicting a period of deep uncertainty and constrained cash for at least 12 months, probably 18 months.  The name of the game is survival.  The businesses that survive will then be able to thrive when trade picks back up again.  Cash is no longer king, it is God.

As hard as it is, take a long hard look at all your expenses.

  1. Cut all expenses which are not directly related to your core business.
  2. Drawdown the new government loan scheme of up to $100,000, depending on your number of employees, to help tide you over. You can have this loan for up to 5 years and interest-free if you repay in the first year.
  3. Talk to your bank early.  Banks have indicated the following two options:
    – Go interest-only on any debt
    – Fund short term gaps via an arranged overdraft – rates have dropped by up to 1% already.
  4. The banks have also confirmed that they will be offering a six month mortgage holiday for people who need it.  This means that you will not pay anything for 6 months and the extra interest that accumulates will be added to your mortgage.  Effectively this means you will have higher mortgage payments at the end of the six months or a longer mortgage period – but it will give you a breathing space.
  5. The banks will offer up to $500,000 commercial loans to businesses with turnovers between $250,000 and $80 million, on normal commercial terms.  In our experience, our clients are finding it hard to access these loans and we have discussed this with the banks.   Their response is:
    a. We are looking at each deal on a case by case basis.
    b. Even in these uncertain times, we are still looking for solid assumptions and forecasts to make sure you can repay.
    c. The debt is underwritten to 80% by the government, but we don’t want to unnecessarily risk the other 20%.
  6. Talk to the IRD. The Beany team met last week with the IRD to understand the current position.Our best advice at this moment:
    • Communicate with the IRD via MyIR if you cannot pay your tax.
    • You must keep filing your returns, even if you can’t pay
    • You need to ask for interest & penalties to be waived. (they won’t just do it)
    • You can ask via your MyIR for a tax payment plan or interest to be waived – this will probably not be checked as long as you are proposing to pay within 2 years.  In other words, they will accept your proposal.
    • The IRD is not differentiating between different tax types so GST, PAYE and income tax are all the same in terms of priority.

Here’s how to request a deferral of tax payments or remittance of interest or penalties:

  • You can apply as a group for your company and shareholders under one arrangement.
  • Secure mail needs to be sent via MYIR detailing all the tax payer’s IRD numbers and the taxes you want interest/penalty remitted on or payment deferred.
  • Details of how you are going to pay your tax.

When you’re making your decisions, think about how much cash you need to survive and make the hard calls.

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