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Our Blog

An ongoing series of informative entries

COVID-19

1 April 2020 

There are extraordinary times and and we wish to reach out to all that we can.

We surely live in unprecedented times. Many of us can get worried and experience some anxiety during this time. It can be very difficult to understand what is going on in the world as the impact of this pandemic accelerates. As a business owner I am trying to map a path through these unknown waters.


A few thoughts come to mind that we would like to share with you to assist a little over the coming weeks. Our sense is that these impacts are going to be most strongly felt over the next 12 weeks so I start by thinking about how my business and others can survive that time frame.


We are all in this together, I believe that by acting sensibly and without panic, we can approach this with something of a plan, knowing that the steps we take are well thought out and in the best interests of all involved.


The impact on every business will be unique to that business. This situation represents significant opportunity to many businesses and a significant threat and even financial destruction to many businesses. I don’t pretend to know the one path through this, or the best path, because each will be unique. So, I offer these thoughts (in the next articles which I will post regularly during this period) with the best wishes to all and I wish you safe journeys through these times.  

COVID-19 Business Support - Business Loans 

6 April 2020

The Government and Banks

Having looked at the Government responses, I believe that they are taking significant steps to ensure the financial safety of both businesses and employees. It seems to me the directions given to the banks are to be friendly and lenient with your customer through this time. However overall, I feel a sense of comfort that the right steps are being taken by these organisations.


The banks appear to have geared up firstly for residential loans (appears to include rental property loans). Most have an online application process. This has caused some frustration for us, as we are not able to assist in the applications, however it does make sense to funnel these applications thru a central processing system.


In essence, loans are 80% guaranteed by the government, the bank taking the 20% risk. They are available to businesses with a turnover between $250k and $80m per annum. The loan can only be used to meet urgent liquidity or bridging financing needs due to COVID-19. The maximum loan is $500k over a maximum of 3 years.


Interestingly Property Developers and Property Investors are handled differently – they can only access the scheme if they have used (exhausted?) their banks existing facilities. I read this as the bank has to lend firstly to the business to the maximum (it would normally lend under normal circumstances), then the business can access the government scheme if necessary.


We have already seen requests for year to date accounts and other financial data to support the mortgage holidays, if you need any help in this area, please contact us.

Wage Subsidy 

6 April 2020

The idea of this is to assist employers in being able to continue paying their staff at no less than 80% of their normal wage. We see this as effectively a replacement of trading income (lost profitability). IRD have advised that legislation is underway to ensure this is exempt from GST. IRD have also confirmed that this will not be subject to income tax, it will be treated as excluded income.


In essence, if the organisation is experiencing or projecting a 30% reduction in turnover, the wages subsidy should be explored.


There is ongoing confusion around employer obligations and these subsidies. If you are unclear on how this all works, the most concise site we have found is here. We are concerned that this is where some employers could get themselves into some trouble:


Firstly, these subsidies are being done under what would be emergency provisions and are being done with a ‘high level of trust’. That is to say, there is minimal checking upfront on the eligibility of employers for these subsidies, however they are clear that there will be some level of audit or review afterwards.


Employers are being asked to take appropriate steps before receiving a subsidy. These steps include taking measures ‘to manage the implications of COVID-19 on their business. These measures might include, but are not limited to, talking with their banks and drawing on internal cash reserves.


What are appropriate measures? This will certainly be different for each business. This is where we feel the stance needed to be taken is that of a ‘reasonable person’ what would a reasonable person do if faced with the issues of today. I suggest that these would include an assessment of the cashflow impacts that are immediately apparent – again, this is really over the 4 week period of absolute closure of the business (for many businesses) and then perhaps a slow return to ‘normal’ trading over the following 8 weeks or so.


Knowing the financial impact on the closure and restart is at the heart of knowing if you can pay your employees at say 80% (or up to 100%) of normal wages during the first 4 weeks and into the next 8 weeks (albeit with a return to trading).


Don’t forget, most commercial landlords are working to defer 3 months of rent, so approach your landlord – My belief is that this is what the government and banks are anticipating happening, it is a component of the process of sharing the load.


There is a desire within the appropriate steps (above) to draw on ‘internal cash reserves’ this is something of a double-edged sword. We are in total uncertainty as to how long this issue lasts, so it is somewhat dangerous to run down cash reserves (at this point anyway), my advice is to seek bank lending sooner rather than later and allow cash reserves for later use. Having said that, if clients have significant cash reserves within the business that far exceed the needs, then they may not have the ability to run the argument, if uncertain, contact us.


With all of the adjustment made, can you proceed with some fundamental aspects to support your Wages Subsidy application – (1), I have experienced or expect to experience a 30% decline in turnover due to COVID-19, (2), I have taken appropriate steps to manage the implications to my business, (3), as I make the application can I see my way to paying at least 80% of the employee wages over the next 12 weeks. Certainly, I may have to take alternative action over the next 12 weeks, but as it stands now, do I see the business surviving the next 12 weeks while paying 80% of normal wages to my staff.


If you are about to apply for the Wages Subsidies for your staff and you can see that based on your cashflow projections you cannot obtain sufficient funds from Wages Subsidies, Mortgage Holidays, Rent Deferrals etc to pay the 80% level over the 12 weeks, then our advice is to not make the application before seeking insolvency advice for the business (we can make some recommendations to insolvency practitioners).


Here is the link for all the information you need to know and apply: https://www.workandincome.govt.nz/products/a-z-benefits/covid19-wage-subsidy.html


Wage Subsidy Updates 

9 April 2020 

We are seeing some interesting queries on the wages subsidies, however overall, they are being processed and paid out. Key things are make sure that the correct ‘employer’ is applying for the subsidies as they are checking on historic earnings by the employee. This creates some interesting outcomes, where people are not necessarily taking a wage from the business (so no history to draw on), yet are being significantly financially impacted and cannot take up the subsidy. For example:


Take a business (operated thru a limited company) that might have been set up around 4 years ago, the first couple of years of start up generated tax losses which are still being used up. The business may well have been profitable the past year or 2, however does not pay a ‘salary or wage’ to the owner as it has not used the tax losses (this is a common decision). The owner however is drawing back their loans (so is drawing cash from the current profits). The business is hit with the COVID-19 crisis and turnover drops considerably. The owner can no longer take cash and is actually having to prop the business up. The business has a more than 30% decline in revenue, yet no wages history, so cannot make a wages subsidy claim… or can it?


We can see a number of ways to assess what is going on and perhaps make a call that a claim should or should not be made. It is well worth exploring with us if you are unsure. Interestingly, if the above scenario were a sole trader or a Look Through Company, we would be saying yes, so we can see that these rules are creating unusual outcomes.

Minimum Wage Increase

10 April 2020

The minimum wage increases again from 1st April, up to $18.90 per hour (no, this is not an April fools joke). Our opinion is that staff who were on less than the new rate, and are currently receiving 80% of their “normal wage” on the basis that the employer is receiving the wage subsidy, will need to have their payments updated with effect from today. For such employees, it means the gap between the wage subsidy and actual wage cost will widen for some employers.

Our Thought 

10 April 2020

The confusion is unnecessary. From a high-level perspective, I can see what the government plan is, and I think, when I look at what other countries are doing, it’s not a bad plan.


Quite simply, the concept is, let’s assume we can stop this virus within 4 weeks of absolute lock down, if so, while we continue to keep our borders closed, we can ‘re-start’ the economy. As you can imagine, this is not going to work for all sectors, international travel will continue to be closed for 6 perhaps 12 months. However, for many sectors, we can re-start after 4 weeks.


There are 4 very significant components of our economy that are going to be ‘leaned on’ to get us through, the first is the government, they are pumping money into the economy via the Wages Subsidy, they in turn ask a massive favour of Business – to support the employee during this time. Business is actually the second leg of this support. Business must try to support the employee while ensuring it knows where it is going (taking appropriate measures) and seeking bank funding to bridge the gap (the actual losses that will be experienced by the business). I believe the banks are then the third leg and the fourth is landlords. 


I am finding that the decisions of some large organisations do not necessarily mirror that of the individuals underneath. How often do company directors or board members sign off on policy that they would not implement if they were the sole owner of the business or organisation? We can so easily hide behind the power of the group, the result is not a human or community oriented decision.

This moment of crisis is playing out equally on all of us, some are still not willing to play a role in supporting their community, whether that be employees, tenants, landlords, or the next door neighbour.


I think we are going to emerge from this with a much more discerning and adaptable community, one that will support good business and turn away from bad, perhaps even a change of priorities and new work habits. We are all in this together. The actions that we all take now will undoubtedly shape our post COVID-19 future.


Let’s look on the bright side

You’ve got another 2 weeks of being cooped up at home in lock-down, so why not use this time to collate the information that we will need for annual accounts (bank balances at 31 March, work in progress calculations / stock on hand / payables and receivables, home office expenses etc..)? Any business looking to utilise the business lending package that the Government and banks are offering will probably need to supply up to date accounts as part of the application process. Furthermore, the sooner your position is known, the better we can all be prepared to manage tax payments moving forward. 


We have already started to get busy, with GST returns, Wages Subsidy applications etc, let us know if you need urgent help in this area


If anyone is having a hard time and would like to explore a discussion, please get in contact and feel free to visit our Facebook page and leave comments.


BUSINESS STARTUP COSTS 

30 April 2020


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