Articles by Salesh Chand


Monday, February 03, 2014

2008 was a year all of us would like to forget.  It was the year when the global economic crisis hit and many individuals, businesses and countries went bankrupt, redundancies happened in their droves, unemployment went up and government cutbacks were the norm.  

Those of you who have been through other recessions will attest that this was definitely one for the records books.  But as a country (New Zealand) we have managed to bounce back from the worst of it with businesses starting to employ again and books starting to appear in the black, as well as the housing sector still creeping up in value.  Don’t be fooled though, as we all know too well another recession will hit; it’s not a matter of if, it’s a matter of when.

One of the major lessons we all learnt is that available cash is so important to have during a recession.  Not so much because it allows you to buy assets at low prices but it allows you to keep afloat when everything around you is starting to sink in debt. 

You see in 2008 and onwards everyone ran out of cash, the banks would not lend, the value of assets such as properties reduced in value, people and businesses were cash strapped, as everyone was spending funds based on a predication that 2008 was going to be another growth year.   In reality 2008 came with major recession and cash flow difficulties, consumers suddenly realised that they did not have funds to run their business or even afford mortgage payments.  This is when the majority of the high leverage investors started to fire sale their assets in order to improve their cash flow.   Some investors had to go bankrupt, some ended up with minimal assets, and others got by without any issue.   But why is that?

The investors that got by without any issue during the recession were cash rich or had cash facilities in place, so when they really needed the cash it was there to get them through the hard times.  Below are some of the important points to remember and to utilise, because we all know another recession will hit, we just don’t know when or how hard it will be:

1. Always have enough cash available e.g. overdraft facility to help you get through the next 6 - 12 months.  If there was a crisis, such as a recession or a personal issue (e.g. you don't have a job), you will be able to give yourself enough time to plan the best outcome for you and your family instead of having to fire sale your assets. 
2. Learn to cut back on unnecessary expenses and stay lean with your household and business expenses during the crisis period.
3. Get rid of any assets that are not performing.
4. Make friends with bankers, lawyers and accountants, as these are the people who will help you during a crisis.
5. If you have good equity in your family home or investment property, you should always refinance and get the maximum overdraft facility while you can.  This doesn't mean that you can go out and spend this overdraft, this is your cash flow that you will use on a rainy day.  
6. Banking rules are getting tight in New Zealand, so you should refinance and get as much facility as you can now. 
It’s important to plan for the best and worst situations and by having cash freely available with facilities like overdrafts, revolving credits, credit cards or just cash in the bank. This will enable you to make the most of any economic situation.

If you would like to discuss your long term cash flow goals give us a call to arrange an appointment.